UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Year ended December 31, 20102011 |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | FOR THE TRANSITION PERIOD FROM TO |
| | Commission File Number 000-08187 |
NEW CONCEPT ENERGY, INC.INC. |
(Exact name of registrant as specified in its charter)
| Nevada | | 75-2399477 |
(State or other jurisdiction of Incorporation or organization) | | (IRS Employer Identification Number) |
1800 Valley View Lane,1603 LBJ Freeway, Suite 300
Dallas, Texas | | 75234 |
| (Address of principal executive offices) | | (Zip Code) |
| Registrant’s Telephone Number including area code | | (972) 407-8400 |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | | Name of each exchange on which registered |
| Common Stock, $0.01 par value | | American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes [X ]No] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | [ ]______ | Accelerated filer | [ ]______ |
| Non-accelerated filer | [ ]______ | Smaller reporting company | [X]__X___ |
The aggregate market value of the shares of voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price at which the common equity was last sold which was the sales price of the Common Stock on the American Stock Exchange as of June 30, 20102011 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $1,658,356$2,092,000 based upon a total of 461,946shares804,492 shares held as of June 30, 20102011 by persons believed to be non-affiliates of the Registrant. The basis of the calculation does not constitute a determination by the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended, such calculation, if made as of a date within sixty days of this filing, would yield a different value.
As of March 30, 2011,2012, there were 1,946,935 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
NEW CONCEPT ENERGY, INC.
Index to Annual Report on Form 10-K
Fiscal year ended December 31, 20102011
| Forward-Looking Statements | - 3 -4 |
| | |
| PART I | - 3 -4 |
| | |
| Item 1. Business | - 3 -4 |
| Item 1A. Risk Factors | - 7 -8 |
| Item 1B. Unresolved Staff Comments | - 8 -9 |
| Item 2. Properties | - 8 -10 |
| Item 3. Legal Proceedings | -11 -11 |
Item 4. Submission of Matters to a Vote of Security HoldersMine Safety Disclosures | - 11 -12 |
| | |
| PART II | - 12 - |
| | |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | - 12 - |
| Item 6. Selected Financial Data | - 13 -12 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation | - 14 -15 |
| Item 7a: Quantitative And Qualitative Disclosures About Market Risk | - 18 - |
Item 8. Financial Statements and Supplementary Data | - 18 - |
| Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | - 18 - |
Item 9A(T). Controls and Procedures | - 18 - |
Item 9B. Other Information | - 19 - |
| | |
| PART III | - 20 - |
| | |
| Item 10. Directors, Executive Officers and Corporate Governance | - 20 - |
| Item 11. Executive Compensation | - 24 - |
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related ShareholderStockholder Matters 25 | - 25 - |
| Item 13. Certain Relationships and Related Transactions, and Director Independence | - 26 - |
| Item 14. Principal Accounting Fees and Services | - 28 -27 |
| | |
| PART IV | - 30 -
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| | |
| Item 15. Exhibits and Financial Statement Schedules | - 30 -
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| | |
| SIGNATURES | - 33 -
|
| |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | - 34 -
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NEW CONCEPT ENERGY, INC.
Forward-Looking Statements
Certain statements in this Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. The words “estimate”, “plan”, “intend”, “expect”, “anticipate”, “believe” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this Report and in the documents incorporated herein by reference. New Concept Energy, Inc. disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause our actual results to differ from estimates or projections contained in any forward-looking statements are described under Item 1A. Risk Factors beginning on page - 7 -.-8-.
PART I
Item 1. Business
New Concept Energy, Inc. (“New Concept”, “NCE” or the “Company” or “we” or “us”) was incorporated in Nevada on May 31, 1991, under the name Medical Resource Companies of America, Inc. The Company is the successor-by-merger to Wespac Investors Trust, a California business trust that began operating in 1982. On March 26, 1996, the name was changed to Greenbriar Corporation. On February 8, 2005, the name of the Company was changed to CabelTel International Corporation. On May 21, 2008, the name of the company was changed to New Concept Energy, Inc.
Oil and Gas Operations
In September 2008, theThe Company, completed the acquisition of certain entities, mineral interests and related assets through its wholly owned subsidiaries Mountaineer State Energy, Inc. and Mountaineer State Operations, LLC. The Company now operates oil and gas wells and mineral leases in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane Counties in West Virginia. The assetsvast majority of this oil & gas operation was acquired included 114through the acquisition of the Carl E. Smith Companies in 2008 As of March 30, 2012 the Company has 159 producing gas wells, 10127 non-producing wells and related equipment and mineral leases.
At December 31, 2010, 121 wells are producing. The Company engaged the firm of independent oil and gas engineers Lee Keeling & Associates, Inc. to estimate the net oil and gas reserves. On the basis of their study, the estimates of the present value of future net revenues were estimated to be $11.9 million at December 31, 2010.leases covering approximately 20,000 acres.
With the exception of one well8 wells that waswere drilled induring the currentpast year the wells in West Virginia and Ohio were drilled prior to acquisition. The majority of wells are located on leased property under mineral rights contracts. While some wells were drilled in the 1960’s, the majority were drilled in the 1970’s and 1980’s. The acquisition was contemplated with the intentionmajority of re-working existing wells in different geological formations using modern technologies, and then drilling new wells in strategic locations.are located on leased property under mineral rights contracts.
In addition to the wells and mineral leases, the acquisition included a complex covering approximately 41 acres of land with 8,000 square feet of office and storage buildings and equipment in excess of the needs of the gas operation and approximately $1.5 million in cash. As of December 31, 2010, the company sold the horse barn and undeveloped land while one piece of heavy equipment remains unsold.
Estimates of total, proved net oil or gas reserves
Reserve Rule Changes: During 2009, the SEC issued its final rule on the modernization of oil and gas reporting (the "Reserve Ruling") and the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2010-03 ("ASU 2010-03") "Extractive Industries – Oil and Gas," which aligns the estimation and disclosure requirements of FASB Accounting Standards Codification Topic 932 with the Reserve Ruling. The Reserve Ruling and ASU 2010-03 are effective for Annual Reports on Form 10-K for fiscal years ending on or after December 31, 2009. The key provisions of the Reserve Ruling and ASU 2010-03 are as follows:
| · | Expanding the definition of oil and gas-producing activities to include the extraction of saleable hydrocarbons, in the solid, liquid or gaseous state, from oil sands, coal beds or other nonrenewable natural resources that are intended to be upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction; |
| · | Amending the definition of proved oil and gas reserves to require the use of an average of the first-day-of-the-month commodity prices during the 12-month period ending on the balance sheet date rather than the period-end commodity prices; |
| · | Adding to and amending other definitions used in estimating proved oil and gas reserves, such as "reliable technology" and "reasonable certainty"; |
| · | Broadening the types of technology that an issuer may use to establish reserves estimates and categories; and, |
| · | Changing disclosure requirements and providing formats for tabular reserve disclosures. |
According to our independent reserve engineering firm, Lee Keeling & Associates, Inc. as of December 31, 2010,2011, our Proved Reserves in Ohio and West Virginia were approximately 7.972.5 million Mcf of natural gas and 71103 thousand Bbls of oil. Of the total Proved Reserves, approximately 37%43% were Proved Developed Reserves. As of December 31, 2010,2011, the related PV-10 of our Proved Reserves was approximately $11.9$10.9 million from Ohio & West Virginia. Additionally the company has other Proved Reserves of approximately $491$250 thousand for a company total of $12.5 million.in Fayetteville Arkansas. During the year ended December 31, 2010,2011, we produced approximately 192,000176,554 Mcf of natural gas and 1,8555,074 Bbls of oil.
Additional Oil and Gas Information
| · | Average sales price per unit in 20102011 - $6.37$5.29 per Mcf |
· | Average production cost and $92.98 per unit in 2010– $4.92 per McfBbls |
| · | Productive wells – 121159 productive wells |
| · | Developed acreage – approximately 20,000 acres |
| · | Drilling activity – Since the date of acquisition, the Company has reworked numerous wells. In 2011, we have tentatively scheduled a “behind-the-pipe” drilling schedule, in addition to new site drilling, subject to favorable market conditions. |
· | Delivery Commitments – For fiscalDuring 2011 the Company has contracted with Dominion Field Services, Inc. to purchase approximately 86% ofdrilled 8 wells. In addition the Company’s gas production. The contractCompany is separated into production from the Ohio wells and the West Virginia wells and is sold at the spot price..continuously reworking its older wells. |
Retirement Community
The Company leases and operates Pacific Pointe Retirement Inn (“Pacific Pointe”) in King City, Oregon. Pacific Pointe began operations in 1993, has a capacity of 114 residents and provides community living with basic services such as meals, housekeeping, laundry, 24/7 staffing, transportation and social and recreational activities. These residents do not yet need assistance or support with activities of daily living but prefer the physical and psychological comfort of a residential community of like-minded people and access to senior-oriented services.
At Pacific Pointe, the Company’s marketing and sales efforts are undertaken at the local level. These efforts are intended to create awareness of our community and its services among prospective residents, their families, other key decision-makers and professional referral sources.
The Company is a Nevada corporation which owns and operates oil and gas wells in Ohio and West Virginia.
The Company intends to continue to pursue acquisition of undervalued or distressed oil and gas related businesses, as well as additional acquisitions of oil and gas leases. The Company may choose to develop or resell the acquired acreage as management deems most beneficial to the Company.
The Company intends to maintain its interest in the retirement center it currently operates, however, for the foreseeable future, management intends to focus its efforts on oil and gas and energy related investments.
Insurance
The Company currently maintains property and liability insurance intended to cover claims in its oil and gas operations, retirement community and corporate operations. The provision of personal services entails an inherent risk of liability compared to more institutional long-term care communities. The Company also carries property insurance on each of its owned and leased properties, as appropriate.
Employees
At December 31, 2010,2011, the Company employed, in all segments, 52 people (26(24 full-time and 2628 part-time). The Company believes it maintains good relationships with its employees. None of the Company’s employees are represented by a collective bargaining group.
The Company’s operations are subject to the Fair Labor Standards Act. Many of the Company’s employees are paid at rates related to the minimum wage and any increase in the minimum wage will result in an increase in labor costs.
Management is not aware of any non-compliance by the Company as regards applicable regulatory requirements that would have a material adverse effect on the Company’s financial condition or results of operations.
Quality Assurance
Energy Philosophy – The Company is committed to the preservation and enhancement of the environment in which we operate. We are philosophically and operationally focused to continually prioritize the sensitivity of our ecological system in which we develop resources for our generation as well as our children’s. Management’s legacy is to prove that the energy industry can develop the earth’s natural resources with clean and efficient technologies while preserving its fragile beauty. Our technologies directly and significantly reduce the impact of our operations on nature and wildlife by minimizing surface disturbance.
Retirement Center Philosophy – The Company’s philosophy of management is to demonstrate by its actions and require from its employees high standards of personal integrity, to develop a climate of openness and trust, to demonstrate respect for human dignity in every circumstance, to be supportive in all relationships, to promote teamwork by involving employees in the management of their own work and to promote the free expression of ideas and opinions. In operating a retirement community, our commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services the Company provides.
Regular Property Inspections – Property inspections are conducted by corporate personnel. These inspections cover the appearance of the exterior and grounds, the appearance and cleanliness of the interior, the professionalism and friendliness of staff and notes on maintenance.
Marketing
One purchaser comprises approximately 86%The Company’s sell most of the Company’sits natural gas production.production to one purchaser and all of its oil production to one purchaser. While there is an available market for crude oil and natural gas production, we cannot be assured that the loss of this purchaser would not have a material impact on the Company.
At Pacific Pointe, the Company’s marketing and sales efforts are undertaken at the local level. These are intended to create awareness of our property and its services among prospective residents, their families and other key referral sources. The property engages in traditional types of marketing activities such as special events, radio spots, direct mailings, print advertising, signs and yellow page advertising. These marketing activities and media advertisements are directed to potential customers.
Government Regulation
Management is not aware of any non-compliance by the Company as regards applicable regulatory requirements that would have a material adverse effect on the Company’s financial condition or results of operations.
Competition
The oil and natural gas industry is highly competitive. We encounter strong competition from other independent operators and from major oil companies in acquiring properties, contracting for drilling equipment and securing trained personnel. Many of these competitors have financial and technical resources and personnel substantially larger than ours. As a result, our competitors may be able to pay more for desirable leases, or to evaluate, bid for and purchase a greater number of properties or prospects than our financial or personnel resources will permit.
We are also affected by competition for drilling rigs and the availability of related equipment. In the past, the oil and natural gas industry has experienced shortages of drilling rigs, equipment, pipe and personnel, which has delayed development drilling and other exploitation activities and has caused significant price increases. We are unable to predict when, or if, such shortages may again occur or how they would affect our development and exploitation program.
Competition is also strong for attractive oil and natural gas producing properties, undeveloped leases and drilling rights, and we cannot assure you that we will be able to compete satisfactorily. Many large oil companies have been actively marketing some of their existing producing properties for sale to independent producers. We regularly evaluate acquisition opportunities and submit bids as part of our growth strategy.
Our retirement community is in a highly competitive environment which and will continue to become increasingly competitive in the future. The Company competes with other retirement companies and numerous other companies providing similar long-term care alternatives, such as home healthcare agencies, community-based service programs and convalescent centers (nursing homes).
Available Information
The Company maintains an internet website at www.newconceptenergy.com. The Company has available through the website, free of charge, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Securities Exchange Act of 1934 (the “Exchange Act”) and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission. In addition, the Company has posted the charters for our Audit Committee, Compensation Committee and Governance and Nominating Committee, as well as our Code of Business Conduct and Ethics, Corporate Governance Guidelines on Director Independence and other information on the website. These charters and principles are not incorporated in this Report by reference. The Company will also provide a copy of these documents free of charge to stockholders upon request. The Company issues Annual Reports containing audited financial statements to its common stockholders.
Risks Related to the Company
An investment in our securities involves various risks. An investor should carefully consider the following risk factors in conjunction with the other information in this report before trading our securities.
The oil & gas industry is highly competitive. Competition for leasehold interests, subcontractors and qualified employees are keen and we are competing against companies that are larger, more experienced and better capitalized than we are.
Our governing documents contain anti-takeover provisions that may make it more difficult for a third party to acquire control of us. Our Articles of Incorporation contain provisions designed to discourage attempts to acquire control of the Company by a merger, tender offer, proxy contest or removal of incumbent management without the approval of our Board of Directors. As a result, a transaction which otherwise might appear to be in your best interests as a stockholder could be delayed, deferred or prevented altogether, and you may be deprived of an opportunity to receive a premium for your shares over prevailing market rates. The provisions contained in our Articles of Incorporation include:
| | ● | the requirement of an 80% vote to make, adopt, alter, amend, change or repeal our Bylaws or certain key provisions of the Articles of Incorporation that embody, among other things, the anti-takeover provisions; |
| | ● | the so-called business combination “control act” requirements involving the Company and a person that beneficially owns 10% or more of the outstanding common stock except under certain circumstances; and |
| | ● | the requirement of holders of at least 80% of the outstanding Common Stock to join together to request a special meeting of stockholders. |
As of March 30, 2011,2012, a group of entities owned and controlled approximately 53%45% of the Company’s outstanding common stock. This group has thesignificant voting power to block any attempted change in control – See Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Item 1B. Unresolved Staff Comments
Not applicable.
The Company’s principal offices are located at 1800 Valley View Lane1603 LBJ Freeway Suite 300, Dallas, Texas 75234 in leased office space. The Company believes this space is presently suitable, fully utilized and will be adequate for the foreseeable future.
Retirement Community
The Company leases andunder a long term lease operates Pacific Pointe Retirement Inn (“Pacific Pointe”) in King City, Oregon. Pacific Pointe began operations in 1993, has a capacity of 114 residents and provides community living with basic services such as meals, housekeeping, laundry, 24/7 staffing, transportation and social and recreational activities. These residents do not yet need assistance or support with activities of daily living but prefer the physical and psychological comfort of a residential community of like-minded people and access to senior-oriented services.
The Company’s retirement community is suitable and adequate for the purpose to which it is devoted.
Oil and Gas
Reserve Estimation
The Company’s producing properties have been in production for over 20 years. Because individual well production volumes were not available, composite production decline curves were constructed for each of the five counties in which these wells are located. All five composite decline curves exhibit well-established production decline trends. After reviewing all available information, it was determined that the most reliable method of estimating the Proved Developed Producing Reserves was by extrapolation of the existing production decline trends to the economic limit of production.
Proved Undeveloped Reserves were estimated by analogy to currently producing wells in the various areas producing from the same formations.
The Company’s reserve reports are prepared by independent petroleum engineers. The process used to control the information provided to the independent petroleum engineers includes an initial compilation of production data by experienced senior management personal in the Company’s field office. This data is independently reviewed by appropriate personal in the Company’s corporate office prior to being submitted to the independent petroleum engineer. The submitted data is ultimately compared to the final reserve report and then agreed to the financial statement disclosures prepared by the Company.
The Company uses the petroleum engineering firm of Lee Keeling and Associates, Inc. to prepare its reserve estimates and future net revenues from its oil and gas properties. The work is performed by a registered professional engineer who is a member of the Society of Petroleum Engineers with over 40 years of experience in the oil and gas industry.
Development plan
In September 2008, the Company through its acquisition of Carl E. Smith, Inc. (now known as Mountaineer Energy, Inc.) acquired 20,000 acres of mineral rights in Ohio and West Virginia. The 20,000 acres are both surrounded and interspersed of hundreds of existing wells of which 121 producing wells were owned by the Company and other non-related entities owned the rest of such wells. The entire area has pipelines in place and decades of information regarding reserves.
In connection with the acquisition, the Company formulated a development plan to first rework existing wells, to improve production using modern technology (both in proved developed and proved undeveloped reserves), and to drillfollow up with the drilling of new wells (in proved undeveloped reserves). The Company’s independent petroleum engineer prepared reserve studies as of the acquisition date, December 31, 2008 through 2010 based upon existing production from the Company’s and other wells in the area and the Company’s plan for drilling in the undeveloped reserves portion of the acreage.wells. The Company’s plan is to use the current knowledge of the area and new technologies available to both rework its existing wells and drill new wells. The Company’s current focus is to drill new wells. The new wells will be drilled in areas currently designated as proved undeveloped.
During December 2010,2011 the Company drilled one8 new well and has drilled one additional well in March 2011.oil wells.
Proved Reserves
The following table presents our estimated proved reserves as of December 31, 2010.2011. These estimates correspond with the method used in presenting the “Supplemental Information on Oil and Gas Operations” in Note O to our consolidated financial statements included in this report.
| | | Gas | | | Oil | |
| | | (MMCF) | | | (MBBLS) | |
| | | | | | | |
| Proved Reserves | | | | | | |
U.S. Onshore | | | | | | |
Developed Producing | | | 1,899 | | | | 15 | |
Developed Non-Producing | | | - | | | | - | |
Undeveloped | | | 5,055 | | | | 57 | |
Total Proved Reserves | | | 6,954 | | | | 72 | |
| | | Gas | | | Oil | |
| | | (MMCF) | | | (MBBLS) | |
| Proved Reserves | | | | | | |
U.S. Onshore | | | | | | |
Developed Producing | | | 1,105 | | | | 57 | |
Developed Non-Producing | | | - | | | | - | |
Undeveloped | | | 1,447 | | | | 47 | |
Total Proved Reserves | | | 2,552 | | | | 104 | |
The following table presents the changes in our total proved undeveloped reserves.
| | | Gas | | | Oil | | | Gas | | | Oil | |
| | | (MMCF) | | | (MBBLS) | | | (MMCF) | | | (MBBLS) | |
| | | | | | | | |
| Proved undeveloped reserves as of December 31, 2008 | | | 4,694 | | | | - | | |
| Proved undeveloped reserves as of December 31, 2010 | | | | 5,055 | | | | 57 | |
| Revaluation of undeveloped reserves | | | | (3,608 | ) | | | 52 | |
Conversion to proved developed reserves | | | - | | | | - | | | | | | | | (42 | ) |
| | | | | | | | | | | | | | | | | |
Proved undeveloped reserves as of December 31, 2009 | | | 4,694 | | | | - | | |
Revaluation of undeveloped reserves | | | 361 | | | | 57 | | |
| | | | | | | | | | |
Proved undeveloped reserves as of December 31, 2010 | | | 5,055 | | | | 57 | | |
Proved undeveloped reserves as of December 31, 2011 | | | | 1,447 | | | | 47 | |
Well Statistics
The following table sets forth our wells (all natural gas) as of December 31, 2010.2011.
| | | Acres | |
| | | Gross (1) | | | Net (2) | |
U.S. Onshore | | | | | | |
Producing | | | 121 | | | | 121 | |
Non-Producing | | | 95 | | | | 95 | |
Total wells | | | 216 | | | | 216 | |
(1) Gross wells are the sum of all wells in which we own an interest.
(2) Net wells are gross wells multiplied by our fractional working interests on the well.
Acreage Statistics
The following table sets forth our developed and undeveloped oil and gas lease and mineral acreage as of December 31, 2010.2011.
| | | Acres | |
| | | Gross (1) | | | Net (2) | |
U. S Onshore | | | | | | |
Developed | | | 19,375 | | | | 19,375 | |
Undeveloped | | | - | | | | - | |
Total Acreage | | | 19,375 | | | | 19,375 | |
(1) Gross acres are the sum of all acres in which we own an interest.
(2) Net acres are gross acres multiplied by our fractional working interests on the acreage.
Item 3. Legal Proceedings
Carlton Energy Group, LLC
In December 2006, Carlton Energy Group, LLC (“Carlton”) instituted litigation against an individual, Eurenergy Resources Corporation (“Eurenergy”) and several other entities including New Concept Energy, Inc., which was then known as CabelTel International Corporation (the “Company”) alleging tortuous conduct, breach of contract and other matters and as to the Company that it was the alter ego of Eurenergy. The Carlton claims were based upon an alleged tortuous interference with a contract by The individual and Eurenergy related to the right to explore a coal bed methane concession in Bulgaria which had never (and has not to this day) produced a drop of hydrocarbons. At no time during the pendency of this project or since did the company or any of its officers or directors have any interest whatsoever in the success or failure of the so-called “Bulgaria Project”. However, in the litigation, Carlton alleged that the Company was the alter-ego of certain of the other Defendants including Eurenergy.
Following a jury trial in 2009, the Trial Court (295th District Court of Harris County, Texas) reduced the actual damages found by the jury of $66.5 million and entered judgment against EurEnergy and The individual jointly and severally for $31.16 million in actual damages on its tortuous-interference claim and the Court further assessed exemplary damages against The individual and EurEnergy in the amount of $8.5 million each. The Court granted a judgment for the Company that it was not the alter ego of any of the other parties and thereby would not incur any damages.
Cross appeals were filed by Carlton, The individual and EurEnergy to the Court of Appeals for the First District of Texas (the “Court of Appeals”) which rendered its opinion on February 14, 2012. The Court of Appeals opinion, among other things, reinstated the jury award of actual damages jointly and severely against The individual and EurEnergy in the amount of $66.5 million and overturned the Trial Court’s ruling favorable to the Company rendering a judgment for that amount plus exemplary damages against the Company as the “alter ego” of Eurenergy.
The Company plans to file a Petition for Review of the Court of Appeals Decision with the Supreme Court of the State of Texas. The Company vigorously denies that it is the “alter ego” of any other entity; further the Company strongly believes that the Court of Appeals opinion is erroneous in concluding that the Company is an “alter ego” of any other entity which is contrary to Nevada substantive law. There are also questions regarding the underlying liability of EurEnergy and if Eurenergy is successful in its petition for review or, even if unsuccessful if the Company is successful on its positions described above, the Trial Court’s judgment could be reinstated and the Company would have no liability on this claim.
Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc. (“Chesapeake”)
In January 2006, the Company entered into a joint operating agreement evidencing its acquisition of a 5% interest in two gas wells being drilled and ultimately operated by Chesapeake. The Company relied on the cost projections provided by Chesapeake to make its investment decision. Subsequent to its investment, the Company received an invoice from Chesapeake for $556,217 which, according to Chesapeake, represents the Company’s 5% share of additional costs incurred by Chesapeake in drilling the wells. The Company believes that these additional costs far exceed any reasonable expense that should have been incurred in drilling the two wells and were incurred without notifying the Company of such expenses. The Company has requested an accounting of the additional expenses and a reconciliation of the final costs to the cost estimates previously presented. In April 2007, Chesapeake filed a lawsuit against the Company and others in District Court of Tarrant County, Texas.
In March 2011, Chesapeake received a summary judgment award for $686,874 plus legal fees. The Company intends to appealhas appealed the judge’s ruling. However,The Company is vigorously pursuing its legal options however the Company notes that there are historical gas sales that the Company has claims to for a total of $196,000 that Chesapeake has in a holding account. The Company has also recorded asthe it's potential obligation should Chesapeake prevail.
The wells in question are producing natural gas to which the Company is entitled to its pro rata share. Chesapeake is withholding the amounts due the company until the legal matter is resolved. As of December 20102011 the estimated valueCompany has recorded a liability due Chesapeake of its interests in the production to date plus the projected future production value at $491,108.$491,000.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on October 28, 2010 at which meeting stockholders were asked to consider and vote upon the election of directors. At the meeting, stockholders elected the following individuals as directors:
| | Shares Voting | | |
| Director | FOR | AGAINST | ABSTAINED | WITHHELD |
| Roz Campisi Beadle | 1,432,602 | 4 | 500 | 504 |
| Gene S. Bertcher | 1,432,602 | 4 | 500 | 504 |
| James E. Huffstickler | 1,432,602 | 4 | 500 | 504 |
| Dan Locklear | 1,432,602 | 4 | 500 | 504 |
| Victor L. Lund | 1,432,602 | 4 | 500 | 504 |
There were no broker non-votes in the election of directors at the annual meeting.Mine Safety Disclosures
Not Applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The common stock of the Company is listed and traded on the American Stock Exchange (“AMEX”) using the symbol “GBR”. The following table sets forth the high and low sales prices as reported in the reporting system of the AMEX and other published financial sources
| | 2010 | | 2009 | | 2011 | | | 2010 | |
| | High | Low | | High | Low | | High | | | Low | | | High | | | Low | |
| | | | | | | | | | | | | | | | |
| First Quarter | 5.30 | 3.26 | | 4.50 | 2.78 | | | 6.76 | | | | 2.96 | | | | 5.30 | | | | 3.26 | |
| Second Quarter | 5.30 | 3.30 | | 5.40 | 3.01 | | | 3.87 | | | | 2.23 | | | | 5.30 | | | | 3.30 | |
| Third Quarter | 3.69 | 2.14 | | 7.50 | 5.15 | | | 2.53 | | | | 1.85 | | | | 3.69 | | | | 2.14 | |
| Fourth Quarter | 5.49 | 2.63 | | 6.79 | 4.01 | | | 2.39 | | | | 1.76 | | | | 5.49 | | | | 2.63 | |
On March 22, 201127, 2012 the closing price of the Company’s common stock was $3.93$2.98 per share. According to the Transfer Agent’s records, at March 24,27, 2011 our common stock was held by approximately 435 holders of record.
Dividends
The Company paid no dividends on its common stock in 20102011 or 2009.2010. The Company has not paid cash dividends on its common stock during at least the last ten fiscal years and it has been the policy of the Board of Directors of the Company to retain all earnings to pay down long-term debt and finance future expansion and development of its businesses. The payment of dividends, if any, will be determined by the Board of Directors in the future in light of conditions then existing, including the Company’s financial condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed relevant by the Board of Directors.
Purchases of Equity Securities
The Board of Directors has not authorized the repurchase of any shares of its common stock under any share repurchase program, except when stockholders owning less than one round lot (100 shares) so request, the Company will purchase shares at market closing on the last trading day prior to receipt of the certificate(s). The Company repurchased no shares during the three months ended December 31, 2010.2011.
Item 6. Selected Financial Data
The selected consolidated financial data presented below are derived from the Company’s audited financial statements.
| | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | | | 2011 | | | 2010 | | | 2009 | |
| | | (amounts in thousands, except per share amounts) | | | (amounts in thousands, except per share amounts) | |
| | | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 4,213 | | | $ | 4,098 | | | $ | 3,560 | | | $ | 3,901 | | | $ | 4,213 | | | $ | 4,098 | |
| Operating expenses | | | 4,257 | | | | 6,827 | | | | 3,702 | | | | 5,762 | | | | 4,257 | | | | 6,827 | |
| Operating profit (loss) | | | (44 | ) | | | (2,729 | ) | | | (142 | ) | | | (1,861 | ) | | | (44 | ) | | | (2,729 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations before income taxes | | | (11 | ) | | | (2,210 | ) | | | 17,269 | | | | (11,793 | ) | | | (11 | ) | | | (2,210 | ) |
| Income tax (expense) | | | — | | | | — | | | | (1,774 | ) | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) from continuing operations | | | (11 | ) | | | (2,210 | ) | | | 15,495 | | | | (11,793 | ) | | | (11 | ) | | | (2,210 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
NET EARNINGS (LOSS) | | $ | (11 | ) | | $ | (2,210 | ) | | $ | 15,495 | | | $ | (11,793 | ) | | $ | (11 | ) | | $ | (2,210 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Earnings (loss) per common share – basic and diluted | | | | | | | | | | | | | | | | | | | | | | | | |
Continuing operations | | $ | (0.01 | ) | | $ | (1.14 | ) | | $ | 8.92 | | | $ | (6.05 | ) | | $ | (0.01 | ) | | $ | (1.14 | ) |
Net earnings per share | | $ | (0.01 | ) | | $ | (1.14 | ) | | $ | 8.92 | | | $ | (6.05 | ) | | $ | (0.01 | ) | | $ | (1.14 | ) |
Basic weighted average common shares | | | 1,947 | | | | 1,947 | | | | 1,737 | | | | 1,947 | | | | 1,947 | | | | 1,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | | | | | |
| Total assets | | $ | 24,067 | | | $ | 25,121 | | | $ | 26,392 | | | $ | 13,450 | | | $ | 24,067 | | | $ | 25,121 | |
| Long-term debt | | | 2,984 | | | | 2,332 | | | | 1,614 | | | | 3,431 | | | | 2,984 | | | | 2,332 | |
| Asset retirement obligation | | | 2,573 | | | | 2,450 | | | | 2,334 | | | | 2,702 | | | | 2,573 | | | | 2,450 | |
| Total liabilities | | | 5,796 | | | | 6,839 | | | | 5,900 | | | | 6,972 | | | | 5,796 | | | | 6,839 | |
| Total stockholders equity | | $ | 18,271 | | | $ | 18,282 | | | $ | 20,492 | | | $ | 18,271 | | | $ | 18,271 | | | $ | 18,282 | |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview
Effective September 1, 2008, theThe Company, completed the acquisition of certain entities, mineral interests and related assets through entities named Carl E. Smith, Inc., a West Virginia corporation, two of its affiliates, Carl E. Smith Petroleum, Inc. and Carl E. Smith Real Estate, Inc. and other privatelywholly owned related assets (collectively “CESI”). Immediately after the acquisition, all of the acquired entities and assets were merged into Carl E. Smith, Inc., the name of which was changed tosubsidiaries Mountaineer State Energy, Inc. (“Mountaineer”) which became a wholly-owned subsidiary of NCE. The assets acquired include 94 producingand Mountaineer State Operations, LLC. operates oil and gas wells 121 non-producing wells and related equipment, mineral leases covering 20,000 acres located in Athens and Meigs Counties in Ohio as well asand in Calhoun, Jackson and Roane Counties in West Virginia. In addition toThe vast majority of this oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008 As of March 30, 2012 the Company has 159 producing gas wells, 27 non-producing wells and related equipment and mineral leases the acquisition included a complex covering approximately 41 acres of land with 8,000 square feet of office and storage buildings, an adjacent 12 acre site with a 24 stall horse barn, machinery and equipment in excess of the needs of the gas operation and approximately $1.5 million in cash. NCE has evaluated the excess equipment and since the acquisition has sold currently plans on selling certain excess land and equipment not needed for current or planned future operations.20,000 acres.
With the exception of 8 wells that were drilled during the past two years the wells in West Virginia and Ohio were drilled in the 1960’s, the majority were drilled in the 1970’s and 1980’s. The cash portionmajority of wells are located on leased property under mineral rights contracts.
A component of the asset acquisition totaling approximately $13.9 million was paid from existing working capital held by NCE.
As part ofpurchase price for the acquisition the Company entered intoof Carl E. Smith, Inc were certain non interest bearing long term obligations which the Company will paid out over the next 1615 years. The Company has evaluated the above notes and after factoring in certain offsets provided for in the agreement has valued the above obligations at $1,198,000$1,387,000 at December 31, 2010.2011.
As of December 31, 2010,2011, the Company leased one independent living community in Oregon, with a capacity of 114 residents.
A number of years ago the Company has owned, leased and operated assisted living and retirement communities throughout the United States. During that period of time the Company has both acquired and sold over seventy communities. The property in Oregon is a holdover from that time period. While not an integral part of our business plan the one remaining facility is profitable and it is anticipated that it will remain a part of the Company’s operations.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Certain of the Company’s accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments and estimates are based upon the Company’s historical experience, current trends and information available from other sources that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believes the following critical accounting policies are more significant to the judgments and estimates used in the preparation of its consolidated financial statements. Revisions in such estimates are recorded in the period in which the facts that give rise to the revisions become known.
Oil and Gas Property Accounting
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires the Company to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense. Beginning December 31, 2009, full cost companies use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date to calculate the future net revenues of proved reserves. Prior to December 31, 2009, companies used the price in effect at the calculation date and had the option, under certain circumstances, to elect to use subsequent commodity prices if they increased after the calculation date.
The Company assesses any unproved oil and gas properties on an annual basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment of unproved properties not subject to amortization, the associated costs incurred to date for such properties are then included in unproved properties subject to amortization.
Oil and Gas Reserves
Our proved oil and gas reserves are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using prices at the date of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Depreciation, depletion and amortization (“DD&A”) of producing properties is computed on the unit-of-production method based on estimated proved oil and gas reserves. While total DD&A expense for the life of a property is limited to the property’s total cost, proved reserve revisions result in a change in timing of when DD&A expense is recognized. Downward revisions of proved reserves result in an acceleration of DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition.
The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using year-end oil and gas prices and year-end costs for estimated future development and production expenditures. Discounted future net cash flows are calculated using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves.
The Company’s allowance for doubtful accounts receivable and notes receivable is based on an analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past due accounts. Management considers such information as the nature and age of the receivable, the payment history of the tenant, customer or other debtor and the financial condition of the tenant or other debtor. Management’s estimate of the required allowance, which is reviewed on a quarterly basis, is subject to revision as these factors change.
Deferred Tax Assets
Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. The future recoverability of the Company’s net deferred tax assets is dependent upon the generation of future taxable income prior to the expiration of the loss carry forwards. At December 31, 2010,2011, the Company had a deferred tax asset due to tax deductions available to it in future years. However, as management could not determine that it was more likely than not that the benefit of the deferred tax asset would be realized, a 100% valuation allowance was established.
Liquidity and Capital Resources
At December 31, 2010,2011, the Company had current assets of $383,000$296,000 and current liabilities of $239,000.$839,000.
Cash and cash equivalents totaled $59,000$109,000 at December 31, 20102011 and 155,00059,000 at December 31, 2009.2010. New Concept’s principal sources of cash are property operations, sales of oil and gas, and proceeds from sales of assets.
Net cash provided by continuing operating activities was $566,000 in 2011, $104,000 in 2010 and $736,000 in 2009 and $427,000 in 2008.2009.
Net cash provided by (used in) investing activities was ($267,000)1,336,000) in 2011, $(267,000) in 2010 and $(823,000) in 2009 and $2.6 million in 2008.2009.
Net cash provided by (used in) financing activities was $820,000 in 2011, $67,000 in 2010 and $52,000 in 2009 and ($3.0 million) in 2008. The $3.0 million used in 2008 was the result of the payment of related party debt of $6.9 million, partially offset by receipt of $2.9 million for the issuance of 950,000 shares of common stock.2009.
Results of Operations
Fiscal 2011 as compared to 2010
Revenues: Total revenues for 2011 $3.9 million compared to $4.2 million in 2010. The primary reason for the decrease was lower prices for the Company’s natural gas sales. The Company does not have long term contracts for its oil and gas production and sell at the spot price with each month’s deliveries. The spot price for gas decreased all throughout 2011.
Operating Expenses: In 2011 the Company recorded a non-cash charge to operations of $1.4 million pursuant to the requirements of the “full cost ceiling test “
Interest Income & Expense: Interest income decreased approximately $137,000 in 2011 when compared to 2010 from 2011 to 2010 due to the Company not accruing interest income on its note receivable from Prime Income Asset Management, Inc (see Note C).
Other Income & (Expense): Other income & (expense) was $(155,000) for 2011 as compared to $(340,000) expense in 2010. The balance in 2011 is comprised of numerous events. In 2010 the company had a write-off of $350,000 for an attempted acquisition that did not occur.
Bad Debt Expense: In 2011 the company recorded a bad debt expense with respect to a note receivable of $10 million dollars (see: Item 13. on page 26 and Footnote C on page 45 for an explanation of the transaction)
Fiscal 2010 as compared to 2009
Revenues and Operating Expenses: Total revenues for 2010 totaled $4.2 million compared to $4.1 million in 2009. The primary reason for the increase is higher occupancy in our retirement facility.
Operating Expenses: Operating expenses totaled $4.3 million for 2010 compared to $6.8 million for 2009. In 2010, oil and gas operating costs totaled $1.3 million compared to $1.5 million in 2009 due to the cost reductions and efficiency in well production. Also in 2010, the Company recorded accretion of discount related to its asset retirement obligation of $123,000. Real estate operating expenses remained relatively constant. Corporate general and administrative expenses decreased from $1.2 million to $731,000, due primarily to the write-down of receivables of approximately $200,000 and the accrual of $200,000 in interest and penalties on unpaid taxes in 2009 that were one time in nature and did not reoccur in 2010.
Interest Income & Expense: Interest income decreased approximately $77,000 from 2009 to 2010 due to the reduction of the principle during 2010. Interest expense remained relatively unchanged from 2009 to 2010.
Other Income & Expense: Other income expense changed from $68,000 in income for 2009 to a $340,000 expense in 2010. The company had a write-off of $350,000 for an attempted acquisition that did not occur.
Fiscal 2009 as compared to 2008
Revenues and Operating Expenses: Total revenues for 2009 totaled $4.1 million compared to $3.6 million in 2008. The primary reason for the increase is the acquisition of the oil and gas operations in September 2008. Fiscal 2009 reflects a full twelve months of operating revenue for the oil and gas operations, while 2008 reflects only four months of such revenue. Oil and gas revenue did not increase as much as may have been anticipated due to the expiration of a fixed-price contract in the first quarter of 2009. For the remainder of the year, gas was sold at the spot price, which was substantially less than the original contract price.
Revenue for the retirement facility totaled approximately $2.9 million for 2008 and 2009.
Operating expenses totaled $6.8 million for 2009 compared to $3.7 million for 2008. In 2009, oil and gas operating costs totaled $1.5 million compared to $496,000 in 2008 due to the acquisition of the oil and gas operations described above. In 2009, the Company recorded a non-cash charge to operations of $1.7 million for impairment of natural gas and oil properties, pursuant to the results of the full-cost ceiling test. Also in 2009, the Company recorded accretion of discount related to its asset retirement obligation of $116,000. Real estate operating expenses remained relatively constant. Corporate general and administrative expenses increased from $852,000 to $1.2 million, due primarily to the write-down of receivables of approximately $200,000 and the accrual of $200,000 in interest and penalties on unpaid taxes, offset by reductions in salaries and wages of approximately $50,000.
Interest Income: Interest income decreased approximately $200,000 from 2008 to 2009 due to the reduction interest rate on portions of the notes receivable from eight percent to the prime rate plus two percent during 2009.
Interest Expense: Interest expense for 2009 decreased approximately $150,000 due to the pay-off of $6.9 million of related party debt in the first quarter of 2008.
Gain on sale of assets: In 2008, the Company sold its investment in mineral rights in the Fayetteville Shale for a gain of approximately $16.4 million. No gain or loss was recorded on sales of assets in 2009.
Other Income: Other income decreased from $464,000 in 2008 to $68,000 in 2009. Other income in 2008 is primarily due to cash received from receivables that were previously fully reserved.
Item 7a: Quantitative And Qualitative Disclosures About Market Risk
All of the Company’s debt is financed at fixed rates of interest. Therefore, the Company has minimal risk from exposure to changes in interest rates.
Item 8. Financial Statements
The financial statements required by this Item begin at page 3534 of this Report.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on an evaluation by our management (with the participation of our Principal Executive Officer and Principal Financial Officer), as of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosures.
There has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system of internal control over financial reporting. These limitations include the possibility of human error, the circumvention of overriding of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management’s assessments and those criteria, management has concluded that Company’s internal control over financial reporting was effective as of December 31, 2010.2011.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial report. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
In preparation for management’s report on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal control over financial reporting. There were no changes in our internal controls over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 20102011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
The affairs of the Company are managed by the Board of Directors. The directors are elected at the Annual Meeting of Stockholders or appointed by the incumbent Board and serve until the next Annual Meeting of Stockholders, until a successor has been elected or approved, or until earlier resignation, removal or death.
It is the Board’s objective that a majority of the Board consists of independent directors. For a director to be considered “independent”, the Board must determine that the director does not have any direct or indirect material relationship with the Company. The Board has established guidelines to assist it in determining director independence, which conform to, or are more exacting than, the independence requirements in the American Stock Exchange listing rules. The independence guidelines are set forth in the Company’s “Corporate Governance Guidelines”. The text of this document has been posted on the Company’s internet website at http://www.newconceptenergy.com, and is available in print to any stockholder who requests it. In addition to applying these guidelines, the Board will consider all relevant facts and circumstances in making an independent determination.
The Company has adopted a code of conduct that applies to all directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer. Stockholders may find our Code of Conduct on our internet website address at http://www.newconceptenergy.com. We will post any amendments to the Code of Conduct as well as any waivers that are required to be disclosed by the rules of the SEC or the AMEX on our website.
Our Board of Directors has adopted charters for our Audit, Compensation and Governance and Nominating Committees of the Board of Directors. Stockholders may find these documents on our website by going to the website address http://www.newconceptenergy.com. Stockholders may also obtain a printed copy of the materials referred to by contacting us at the following address:
New Concept Energy, Inc.
Attn: Investor Relations
1800 Valley View Lane,1603 LBJ Freeway, Suite 300
Dallas, Texas 75234
972-407-8400 (Telephone)
The Audit Committee of the Board of Directors is an “audit committee” for the purposes of Section 3(a) (58) of the Exchange Act. The members of that Committee are Dan Locklear (Chairman), James Huffstickler and Victor L. Lund. Mr. Locklear is qualified as an “audit committee financial expert” within the meaning of SEC regulations and the Board has determined that he has the accounting and related financial management expertise within the meaning of the listing standards of the AMEX. All of the members of the Audit Committee meet the independence and experience requirements of the listing standards of the AMEX.
All members of the Audit Committee, Compensation Committee and the Governance and Nominating Committee must be independent directors. Members of the Audit Committee must also satisfy additional independence requirements which provide (i) that they may not accept, directly or indirectly, any consulting, advisory or compensatory fee from the Company or any of its subsidiaries other than their director’s compensation (other than in their capacity as a member of the Audit Committee, the Board of Directors or any other Committee of the Board), and (ii) no member of the Audit Committee may be an “affiliated person” of the Company or any of its subsidiaries, as defined by the Securities and Exchange Commission.
The current directors of the Company are listed below, together with their ages, terms of service, all positions and offices with the Company, their principal occupations, business experience and directorships with other companies during the last five years or more. The designation “affiliated”, when used below with respect to a director, means that the director is an officer or employee of the Company or one of its subsidiaries. The designation “independent”, when used below with respect to a director, means that the director is neither an officer of the Company nor a director, officer or employee of a subsidiary of the Company, although the Company may have certain business or professional relationships with the director as discussed in Item 13. Certain Relationships and Related Transactions.
Roz Campisi Beadle, age 54,55, (Independent) Director since December 2003
Ms. Beadle is Executive Vice President of Unified Housing Foundation and a licensed realtor. She has a background in public relations and marketing. Ms. Beadle is also extremely active in various civic and community services and is currently working with the Congressional Medal of Honor Society and on the Medal of Honor Host City Committee in Gainesville, Texas.
Gene S. Bertcher, age 62,63, (Affiliated) Director November 1989 to September 1996 and since June 1999
Mr. Bertcher was elected President and Chief Financial Officer effective November 1, 2004. He was elected Chairman and Chief Executive Officer in December 2006. Mr. Bertcher has been Chief Financial Officer and Treasurer of the Company since November 1989 and Executive Vice President from November 1989 until he was elected President. Also, Mr. Bertcher is and will continue to be Executive Vice-President and Chief Financial Officer of American Realty Investors, Inc. (NYSE), Transcontinental Realty Investors, Inc. (NYSE), Income Opportunity Realty Investors, Inc. (AMEX), and Vice President and Treasurer of First Equity Properties, Inc., positions he has occupied since February 2008. He has been a certified public accountant since 1973. No family relationship exists between Mr. Bertcher and any director or executive officer of the Company.
James E. Huffstickler, age 68,69, (Independent) Director since December 2003
Mr. Huffstickler has been Chief Financial Officer of Sunchase America, Ltd., a multi-state property management company, for more than nineteen years. He is a graduate of the University of South Carolina and was formerly employed by Southmark Management, Inc., a nationwide real estate management company. Mr. Huffstickler has been a certified public accountant since 1976.
Dan Locklear, age 59,60, (Independent) Director since December 2003
Mr. Locklear has been Chief Financial Officer of Sunridge Management Group, a real estate management company, for more than five years. Mr. Locklear was formerly employed by Johnstown Management Company, Inc. and Trammel Crow Company. Mr. Locklear has been a certified public accountant since 1981 and a licensed real estate broker in the State of Texas since 1978.
Victor L. Lund, age 82,83, (Independent) Director since March 1996
Mr. Lund founded Wedgwood Retirement Inns, Inc. (“Wedgwood”) in 1977, which became a wholly owned subsidiary of the Company in 1996. For most of Wedgwood’s existence, Mr. Lund was Chairman of the Board, President and Chief Executive Officer, positions he held until Wedgwood was acquired by the Company. Mr. Lund is President and Chief Executive Officer of Wedgwood Services, Inc., a construction services company not affiliated with the Company.
Board Committees
The Board of Directors held four meetings during 2010.2011. For such year, no incumbent director attended fewer than 75% of the aggregate of (i) the total number of meetings held by the Board during the period for which he or she had been a director, and (ii) the total number of meetings held by all Committees of the Board on which he or she served during the period that he or she served.
The Board of Directors has standing Audit, Compensation and Governance and Nominating Committees. The Audit Committee was formed on December 12, 2003, and its function is to review the Company’s operating and accounting procedures. A Charter of the Audit Committee has been adopted by the Board. The current members of the Audit Committee, all of whom are independent within the SEC regulations, the listing standards of the AMEX and the Company’s Corporate Governance Guidelines are Messrs. Locklear (Chairman), Huffstickler and Lund. Mr. Dan Locklear is qualified as an Audit Committee financial expert within the meaning of SEC regulations, and the Board has determined that he has the accounting and related financial management expertise within the meaning of the listing standards of the AMEX. The Audit Committee met twicefour times in 20102011.
The Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to the corporate governance, including reviewing and monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. The Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance and self-evaluation. The Charter of the Governance and Nominating Committee was adopted on October 20, 2004. The members of the Committee are Messrs. Huffstickler (Chairman), Lund and Ms. Beadle. The Governance and Nominating Committee met once in 2009.2011.
The Board has also formed a Compensation Committee of the Board of Directors, adopted a Charter for the Compensation Committee on October 20, 2004, and selected Ms. Beadle (Chairman) and Messrs. Huffstickler and Locklear as members of that Committee. The Compensation Committee met once in 2009.2011.
The members of the Board of Directors at the date of this Report and the Committees of the Board on which they serve are identified below:
| Director | Audit Committee | Governance and Nominating Committee | Compensation Committee |
| Roz Campisi Beadle | | ü | Chairman |
| Gene S. Bertcher | | | |
| James E. Huffstickler | ü | Chairman | ü |
| Dan Locklear | Chairman | | ü |
| Victor L. Lund | ü | ü | |
Executive Officers
The following person currently serves as the sole executive officer of the Company: Gene S. Bertcher, Chairman of the Board, President, Chief Executive Officer and Treasurer. His position with the Company is not subject to a vote of stockholders. His age, term of service and all positions and offices with the Company, other principal occupations, business experience and directorships with other companies during the last five years or more are listed under the caption “Directors” above.
In addition to the foregoing officers, the Company has other officers not listed herein who are not considered executive officers.
Code of Ethics
The Board of Directors has adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to all directors, officers and employees of the Company and its subsidiaries. In addition, the Company has adopted a code of ethics entitled “Code of Ethics for Senior Financial Officers” that applies to the principal executive officer, president, principal financial officer, chief financial officer, principal accounting officer and controller. The text of these documents is posted on the Company’s internet website address at http://www.newconceptenergy.com and is available in print to any stockholder who requests them.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act“), or upon written representations received by the Company, the Company is not aware of any failure by any director, officer or beneficial owner of more than 10% of the Company’s common stock to file with the Securities and Exchange Commission on a timely basis.
Item 11. Executive Compensation
The following tables set forth the compensation in all categories paid by the Company for services rendered during the fiscal years ended December 31, 2011, 2010 2009 and 20082009 by the Chief Executive Officer of the Company and to the other executive officers and Directors of the Company whose total annual salary in 20102011 exceeded $100,000, the number of options granted to any of such persons during 20102011 and the value of the unexercised options held by any of such persons on December 31, 2010.2011.
| SUMMARY COMPENSATION TABLE | | | | | | | | | | | | | | | | | | |
| | | | | | | Change in | | | | | | | | Change in | | |
| | | | | | Non- | Pension | | | | | | | Non- | Pension | | |
| | | | | | Equity | Value and | | | | | | | Equity | Value and | | |
| Name | | | | | Incentive | Nonqualified | All | | | | | | Incentive | Nonqualified | All | |
| and | | | | | Plan | Deferred | Other | | | | | | Plan | Deferred | Other | |
| Principal | | | | Stock | Option | Compen- | Compensation | Compen- | | | | | Stock | Option | Compen- | Compensation | Compen- | |
| Position | Year | Salary | Bonus | Awards | sation | Earnings | sation | Total | Year | Salary | Bonus | Awards | sation | Earnings | sation | Total |
| | | | | | | | | | | | | | | | | |
Gene S. Bertcher (1) Chairman, President & Chief Financial Officer | 2010 | td97,000 | | | | | | td97,000 | 2011 | $98,500 | | | | | | $98,500 |
| 2009 | td97,000 | | | | | | td97,000 | 2010 | $98,500 | | | | | | $98,500 |
| 2008 | td97,000 | | | | | | td97,000 | 2009 | $98,500 | | | | | | $98,500 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Doug Wight, President(2)) | 2008 | $67,000 | | | | | | $67,000 | |
| | | | | | | | | | | | | | | | | |
| | (1)In February 2008 began providing assistance to a related company which reimburses NCE forpays 50% of Mr. Bertcher’s total compensation. The salary in the above table represents totalthe portion of Mr. Bertcher’s compensation before reimbursement.paid by the Company. |
| (2)Doug Wight joined the Company in September 2008 with an annual salary of $180,000. Effective April 9, 2009 Mr. Wight is no longer with the Company. Mr. Bertcher was reappointed by the Board of Directors as President.
|
GRANTS OF PLAN-BASED AWARDS
None
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
None
OPTION EXERCISES AND STOCK VESTED
The option to purchase 10,000 shares was exercised in December 2008. The option to purchase 40,000 shares expired in December 2008.
PENSION BENEFITS
None
NONQUALIFIED DEFERRED COMPENSATION
None
| DIRECTOR COMPENSATION |
| Name | Fees Earned Or Paid in Cash | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total |
| | | | | | | | |
| Roz Campisi Beadle | $ 8,500 | | | | | | $8,500 |
| Gene S. Bertcher | $ — | | | | | | $— |
| James E. Huffstickler | $ 8,500 | | | | | | $8,500 |
| Dan Locklear | $ 8,500 | | | | | | $8,500 |
| Victor L. Lund | $ 8,500 | | | | | | $8,500 |
MANAGEMENT AND CERTAIN SECURITY HOLDERS
None
Compensation of Directors
The Company pays each non-employee director a fee of $2,500 per year, plus a meeting fee of $2,000 for each board meeting attended. Employee directors serve without compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of March 22, 2011, certain information with respect to all stockholders known by the Company to own beneficially more than 5% of the outstanding common stock, which is the only outstanding class of securities of the Company, except for Series B Preferred Stock (the ownership of which is immaterial), as well as information with respect to the Company’s common stock owned beneficially by each director and current executive officers, whose compensation from the Company in 20102011 exceeded $100,000, and by all directors and executive officers as a group. Unless otherwise indicated, each of these stockholders has sole voting and investment power with respect to the shares beneficially owned.
| | | Common Stock | | | Common Stock | |
| Name of Beneficial Owner | | No. of Shares | | | Percent of Class* | | | No. of Shares | | | Percent of Class* | |
Arcadian Energy, Inc.(3)(5) | | | 1,027,468 | | | | 52.80 | % | | | 868,398 | | | | 44.60 | % |
| Roz Campisi Beadle | | | 100 | | | | ** | | | | 100 | | | | ** | |
Gene S. Bertcher(2) | | | 40,811 | | | | 2.1 | % | | | 40,811 | | | | 2.1 | % |
Go Green Fuel N.A., L.P. (6) | | | 100,000 | | | | 5.14 | % | | | 100,000 | | | | 5.14 | % |
HKS Investment Corporation(1) | | | 108,944 | | | | 5.6 | % | | | 108,944 | | | | 5.6 | % |
| James E. Huffstickler | | | — | | | | 0 | % | | | — | | | | 0 | % |
| Dan Locklear | | | — | | | | 0 | % | | | — | | | | 0 | % |
| Victor L. Lund | | | — | | | | 0 | % | | | — | | | | 0 | % |
TacCo Financial, Inc.(3)(4) | | | 500 | | | | ** | | | | 500 | | | | ** | |
URC Energy, LLC(3)(5) | | | 900,000 | | | | 46.23 | % | | | 740,430 | | | | 38.03 | % |
| All executive officers and directors as a group (five persons) | | | 40,911 | | | | 2.1 | % | | | 40,911 | | | | 2.1 | % |
* Based on 1,946,935 shares of common stock outstanding at March 22, 2011.
** Less than 1%.
| (1) | Consists of 108,994 shares of common stock owned by HKS Investment Corporation (“HKS”). According to an original statement on Schedule 13D dated January 9, 2006, the group consists of HKS Investment Corporation, David Hensel, John Kellar and Marshall Stagg, each of whom are deemed to be the beneficial owner of all 108,994 shares. Hensel is stated to be a shareholder, director and President of HKS; Kellar is a shareholder, director, Vice President and Treasurer of HKS; and Stagg is a shareholder, director and Secretary of HKS. |
| (2) | Consists of 40,811 shares of common stock owned by Mr. Bertcher. |
| (3) | Based on Amendment 1620 to Schedule 13D, amended February 23, 2011,March 2, 2012, filed by each of these entities. Arcadian Energy, Inc. owns 127,968 shares direct and is the sole member of URC Energy, LLC which owns 900,000740,430 shares. The amended Schedule 13D indicates that these entities, collectively, may be deemed a “Person” within the meaning of Section 13D of the Securities Exchange Act of 1934. |
| (4) | Consists of 500 shares of common stock. Officers and Directors of TacCo Financial, Inc. (“TFI”) are J.T. Tackett, Director, Chairman and CEO; Wayne Starr, Director,Ted P. Stokely, Chairman; RL S. Lemke, President and Treasurer and Craig E. Landess, Secretary. TFI’s stock is owned by Electrical Networks, Inc. (75%) and Starr Investments (25%Ted P. Stokely (100%). |
| (5) | The direct owner of the 900,000740,340 shares of common stock is URC Energy, LLC. Under Rule 13d-3 of the Exchange Act, Arcadian Energy, Inc. as the sole member of URC Energy, LLC is deemed to be the beneficial owner of such shares. |
| (6) | Consists of 100,000 shares of Common Stock owned by Go Green Fuel N.A., L.P. a Texas limited partnership, the sole General Partner of which is GGF North American, LLC, a Texas limited liability company. According to an original statement on Schedule 13D dated December 31, 2009, Go Green Fuel N.A., L.P. acquired 100,000 shares of Common Stock from West Go Green, LLC a Nevada limited liability company at a price of $6.90 per share and Go Green Fuel N.A., LP granted to West Go Green LLC a “Repurchase Option” for a period of three calendar years from December 31, 2009 to repurchase all or any portion of the 100,000 shares purchased at the original purchase price of $6.90 per share, which Repurchase Option may be exercised by West Go Green, LLC or its assignee by written notice given to Go Green Fuel N.A. LP at least two calendar days prior to the date of exercise of the Repurchase Option. |
Change in Control
On July 21, 2009, Arcadian Energy, Inc. a Nevada corporation (“Arcadian”) acquired from Syntek West, Inc., a Nevada corporation (“SWI”) (i) 395,078 shares of Common Stock of the Company (approximately 20.29% of the issued and outstanding Common Stock) at an aggregate price of $2,074,160 (approximately $5.25 per share) and (ii) 100% of the Membership Interest of and in URC Energy LLC, a Nevada limited liability company (“URCLLC”) for a purchase price of $5,220,585 at that time. URCLLC owned and had owned since May 18, 2008, an aggregate of 950,000 shares of Common Stock of the Company (approximately 48.79% of the then issued and outstanding Common Stock). With such acquisition, Arcadian acquired the beneficial ownership of approximately 67% of the issued and outstanding Common Stock of the Company and a change of control of the Company occurred. The basis of control is the aggregate percentage of voting securities of the Company beneficially owned by the “Reporting Persons” which include URCLLC at and Arcadian.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Prime Income Asset Management, Inc (“PIAMI”) is a real estate management company that also invests in real estate for its own account. PIAMI is indirectly owned by a private trust. URC Energy, Inc is and has been a significant investor in the Company. URC Energy, Inc is indirectly owned by a private trust. While the two trusts are separate they have similar trustees and beneficiaries and therefore the Company has noted PIAMI as a related party.
Eurenergy Resources, Inc (“ERC”) is an oil & gas company that owned and operated oil and gas wells.
Beginning in 2006 the Company made loans to PIAMI and ERC at interest rates higher than the Company believes it could have gotten elsewhere.
In July 2006, the Company made an unsecured $1.4 million loan to ERC at an annual interest rate of 8%. In June of 2008, the Company entered into a letter of credit agreement with ERC. The terms of the agreement call for interest at the prime rate plus two percent. At May 21, 2009, the balance of the two notes and accrued interest thereon was $3,970,897.
On November 20, 2007, the Company made a $630,000 loan to Prime Income Asset Management, Inc. (“PIAMI”).PIAMI. In 2008, the Company made additional net advances on the loan totaling approximately $6.3 million. The initial loan and the additional advances have been combined into a new loan with interest at the prime rate plus two percent.
On May 21, 2009, PIAMI acquired both Eurenergy notes receivable at face value plus accrued interest totaling $3,970,897. Effective May 21, 2009 the Company and PIAMI entered into a new note combing all of the above loans into one note. The loan calls for interest at the prime rate plus 2% with principal and interest payable within 30 days after demand, and if not sooner demanded, on January 31, 2013.
At December 31, 2010,2009, the balance due including accrued interest on the note receivable from PIAMI was $10.1$11.1 million.
During 2010 the note was paid down whereby as of December 31, 2010 the outstanding principal and interest totaled $10.4 million.
During the first three quarters of 2011 the Company accrued interest of $360,000 and received $715,000 in payments from PIAMI. In the fourth quarter of 2011 the Company determined that the financial condition of PIAMI had deteriorated and there could be no assurance that the amount owed would or could be collected. The company has recorded a reserve of $10 million and written the receivable to zero.
In November 2007, the Company entered into an agreement with EurenergyERC to provide accounting and administrative services at $15,000 per month. As of December 31, 2010, EurenergyJune 30, 2009 ERC owes the Company $156,900 for such services. In June 2009, the agreement with EurenergyERC expired. As of December 31, 2010,2009 the amount receivable from EurenergyERC has been fully reserved. ERC filed for bankruptcy in 2010. The Company entered into a similar agreement with Energy Advisors, LLC in July 2009. As of December 31,In 2010 the formal arrangement with Energy Advisors owes the Company $270,000 for accounting and administrative services.was ended with all amounts due having been paid.
Except as set forth above, the Reporting Persons do not have any contracts, arrangements, understandings or relationships, legal or otherwise, with any person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities, finders’ fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or losses, or the giving or withholding of proxies.
It is the policy of the Company that all transactions between the Company and any officer or director, or any of their affiliates, must be approved by non-management members of the Board of Directors of the Company. All of the transactions described above were so approved.
Item 14. Principal Accounting Fees and Services
The following table sets forth the aggregate fees for professional services rendered to the Company for the years 20102011 and 20092010 by the Company’s principal accounting firm Swalm & Associates, P.C.:
| Type of Fees | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| Audit Fees | | $ | 45,000 | | | $ | 40,215 | | | $ | 47,000 | | | $ | 45,000 | |
| Audit Related Fees | | | 10,214 | | | | — | | | | — | | | | 10,214 | |
| Tax Fees | | | 8,500 | | | | 8,688 | | | | 8,325 | | | | 8,500 | |
| All Other Fees | | | — | | | | — | | |
| | | | | | | | | | | | | | | | | |
| Total Fees | | $ | 63,714 | | | $ | 48,903 | | | $ | 55,325 | | | $ | 63,714 | |
All services rendered by the principal auditors are permissible under applicable laws and regulations and were pre-approved by either of the Board of Directors or the Audit Committee, as required by law. The fees paid to principal auditors for services described in the above table fall under the categories listed below:
Audit Fees: These are fees for professional services performed by the principal auditor for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Form 10-Q filings and services that are normally provided in connection with statutory and regulatory filings or engagements.
Audit-Related Fees: These are fees for assurance and related services performed by the principal auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements. These services include attestation by the principal auditor that is not required by statute or regulation and consulting on financial accounting/reporting standards.
Tax Fees: These are fees for professional services performed by the principal auditor with respect to tax compliance, tax planning, tax consultation, returns preparation and reviews of returns. The review of tax returns includes the Company and its consolidated subsidiaries.
All Other Fees: These are fees for other permissible work performed by the principal auditor that does not meet the above category descriptions.
These services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in the principal auditor’s core work, which is the audit of the Company’s consolidated financial statements.
Financial Information Systems Design and Implementation Fees
Swalm & Associates, P.C. did not render professional services to the Company in 20102011 with respect to financial information systems design and implementation.
Under the Sarbanes-Oxley Act of 2002 (the “SO Act”), and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee of the Board of Directors is responsible for the appointment, compensation and oversight of the work of the independent auditor. The purpose of the provisions of the SO Act and the SEC rules for the Audit Committee’s role in retaining the independent auditor is two-fold. First, the authority and responsibility for the appointment, compensation and oversight of the auditors should be with directors who are independent of management. Second, any non-audit work performed by the auditors should be reviewed and approved by these same independent directors to ensure that any non-audit services performed by the auditor do not impair the independence of the independent auditor. To implement the provisions of the SO Act, the SEC issued rules specifying the types of services that an independent auditor may not provide to its audit client, and governing the Audit Committee’s administration of the engagement of the independent auditor. As part of this responsibility, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent
auditor in order to assure that they do not impair the auditor’s independence. Accordingly, the Audit Committee has adopted a pre-approval policy of audit and non-audit services (the “Policy”), which sets forth the procedures and conditions pursuant to which services to be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers pre-approval of audit services, audit-related services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit Committee will evaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, and the approve or reject each service, taking into account whether services are permissible under applicable law and the possible impact of each non-audit service on the independent auditor’s independence from management. Typically, in addition to the generally pre-approved services, other services would include due diligence for an acquisition that may or may not have been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit Committee designated by the Board or the financial expert member of the Audit Committee responsibilities to pre-approve services to be performed by the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services, and such authority may only be exercised when the Audit Committee is not in session.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
| (1) | FINANCIAL STATEMENTS: The following financial statements of the Registrant and the Report of Independent Public Accountants therein are filed as part of this Report on Form 10-K: |
Reports of Swalm & Associates, P.C.
| | |
| Reports of Swalm & Associates, P.C. | |
| | |
| | Consolidated Balance Sheets | 3534 |
| | | |
| | Consolidated Statement of Operations | 3736 |
| | | |
| | Consolidated Statements of Cash Flows | 38 |
| | | |
| | Consolidated Statement of Changes in Stockholders’ Equity | 39 |
| | | |
| | Notes to Consolidated Financial Statements | 40 |
| |
| (2) | FINANCIAL STATEMENT SCHEDULES: Other financial statement schedules have been omitted because the information required to be set forth therein is not applicable, is immaterial or is shown in the consolidated financial statements or notes thereto. |
The following documents are filed as exhibits (or are incorporated by reference as indicated) into this Report:
Exhibit Designation | Exhibit Description |
| |
| 3.1 | Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.1 to Registrant’s Form S-4 Registration Statement No. 333-55968 dated December 21, 1992) |
| |
| 3.2 | Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit 3.5 to Registrant’s Form 8-K dated April 1, 1993) |
| |
| 3.3 | Restated Articles of Incorporation of Greenbriar Corporation (incorporated by reference to Exhibit 3.1.1 to Registrant’s Form 10-K dated December 31, 1995) |
| |
| 3.4 | Amendment to the Articles of Incorporation of Medical Resource Companies of America (incorporated by reference to Exhibit to Registrant’s PRES 14-C dated February 27, 1996) |
| |
| 3.5 | Certificate of Decrease in Authorized and Issued Shares effective November 30, 2001 (incorporated by reference to Exhibit 2.1.7 to Registrant’s Form 10-K dated December 31, 2002) |
| |
| 3.6 | Certificate of Designations, Preferences and Rights of Preferred Stock dated May 7, 1993 relating to Registrant’s Series B Preferred Stock (incorporated by reference to Exhibit 4.1.2 to Registrant’s Form S-3 Registration Statement No. 333-64840 dated June 22, 1993) |
| |
| 3.7 | Certificate of Voting Powers, Designations, Preferences and Rights of Registrant’s Series F Senior Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.2 of Registrant’s Form 10-KSB for the fiscal year ended December 31, 1997) |
| |
| 3.8 | Certificate of Voting Powers, Designations, Preferences and Rights of Registrant’s Series G Senior Non-Voting Convertible Preferred Stock dated December 31, 1997 (incorporated by reference to Exhibit 2.2.3 of Registrant’s Form 10-KSB for the fiscal year ended December 31, 1997) |
| |
| 3.9 | Certificate of Designations dated October 12, 2004 as filed with the Secretary of State of Nevada on October 13, 2004 (incorporated by reference to Exhibit 3.4 of Registrant’s Current Report on Form 8-K for event occurring October 12, 2004) |
| |
| 3.10 | Certificate of Amendment to Articles of Incorporation effective February 8, 2005 (incorporated by reference to Exhibit 3.5 of Registrant’s Current Report on Form 8-K for event occurring February 8, 2005) |
| |
| 3.11 | Certificate of Amendment to Articles of Incorporation effective March 21, 2007 (incorporated by reference to Exhibit 3.13 of Registrant’s Current Report on Form 8-K for event occurring March 21, 2005) |
| |
| 3.12 | Amended and restated bylaws of New Concept Energy, Inc. dated November 18, 2008. |
| |
| 10.1 | Registrant’s 1997 Stock Option Plan (filed as Exhibit 4.1 to Registrant’s Form S-8 Registration Statement, Registration No. 333-33985 and incorporated herein by this reference). |
| |
| 10.2 | Registrant’s 2000 Stock Option Plan (filed as Exhibit 4.1 to Registrant’s Form S-8 Registration Statement, Registration No. 333-50868 and incorporated herein by this reference) |
| |
| 10.3 | Form of Umbrella Agreement between Greenbriar Corporation, James R. Gilley and Jon Harder, Sunwest Management, Inc. et al |
| |
| 14.0 | Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003) |
| |
| 21.1* | Subsidiaries of the Registrant |
| |
| 23.2* | Consent of Lee Keeling & Associates, Inc. |
| |
| 31.1* | Rule 13a-14(a) Certification by Principal Executive Officer and Chief Financial Officer |
| |
| 32.1* | Certification of Principal Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T |
|
| |
| *Filed herewith. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | NEW CONCEPT ENERGY, INC. | |
| | | |
| March 30, 2011 | By: | by: /s/ Gene S. Bertcher | |
| | Gene S. Bertcher, Principal Executive | |
| | Officer, President and Chief Financial Officer | |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date |
/s/ Gene S. Bertcher Gene S. Bertcher | Chairman, President, Principal Executive Officer, Chief Financial Officer and Director | March 30, 2011 |
/s/ Roz Campisi Beadle Roz Campisi Beadle | Director | March 30, 2011 |
/s/ James Huffstickler James Huffstickler | Director | March 30, 2011 |
/s/ Dan Locklear Dan Locklear | Director | March 30, 2011 |
/s/ Victor L. Lund Victor L. Lund | Director | March 30, 2011 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
New Concept Energy, Inc.
We have audited the accompanying consolidated balance sheets of New Concept Energy, Inc., and subsidiaries, as of December 31, 20102011 and 2009,2010, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2010.2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an auditaudits of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements,statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in the notes to the financial statements, New Concept Energy, Inc. has significant balances due from affiliates.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Concept Energy, Inc., and subsidiaries as of December 31, 20102011 and 2009,2010, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010,2011, in conformity with accounting principles generally accepted in the United States of America.
As described in the Note C to the financial statements, the Company had significant balances due from an affiliate which was fully reserved in 2011.
As described in Note K to the financial statements, the Company is named as a party to a significant lawsuit judgment. The Company and its legal counsel believe that the judgment is in error and that while the outcome of the matter cannot presently be determined, they do not believe that the matter will have a material effect on the Company’s financial position. Accordingly, no provision for any liability that may result has been made in the financial statements. Nevertheless, due to the nature of the uncertainty, it is reasonably possible that management’s view of the outcome will change in the near term.
/s/ Swalm & Associates, P.C.
Plano, Texas
March 31,30, 2011
NEW CONCEPT ENERGY, INC. AND SUBSIDARIES | | |
| NEW CONCEPT ENERGY ENERGY, INC. AND SUBSIDARIES | | NEW CONCEPT ENERGY ENERGY, INC. AND SUBSIDARIES | |
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | | CONSOLIDATED BALANCE SHEETS | |
(amounts in thousands) | (amounts in thousands) | | (amounts in thousands) | |
| | | December 31, 2010 | | | December 31, 2009 | | | December 31 | |
| | | | | | | | | 2011 | | | 2010 | |
| Assets | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 59 | | | $ | 155 | | | $ | 109 | | | $ | 59 | |
| Accounts receivable from oil and gas sales | | | 223 | | | | 203 | | | | 167 | | | | 223 | |
| Other current assets | | | 101 | | | | 567 | | | | 20 | | | | 101 | |
| Total current assets | | | 383 | | | | 925 | | | | 296 | | | | 383 | |
| | | | | | | | | | | | | | | | | |
| Note and interest receivable – related party | | | 10,361 | | | | 11,206 | | | | - | | | | 10,361 | |
| | | | | | | | | | | | | | | | | |
| Oil and natural gas properties (full cost accounting method) | | | | | | | | | | | | | | | | |
| Proved developed and undeveloped oil and gas properties, net of depletion | | | 11,789 | | | | 11,372 | | | | 11,141 | | | | 11,789 | |
| | | | | | | | | | | | | | | | | |
| Property and equipment, net of depreciation | | | | | | | | | | | | | | | | |
| Land, buildings and equipment - oil and gas operations | | | 1,308 | | | | 1,337 | | | | 1,486 | | | | 1,308 | |
| Other | | | 156 | | | | 149 | | | | 150 | | | | 156 | |
| Total property and equipment | | | 1,464 | | | | 1,486 | | | | 1,636 | | | | 1,464 | |
| | | | | | | | | | | | | | | | | |
| Other assets | | | 70 | | | | 132 | | | | 377 | | | | 70 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 24,067 | | | $ | 25,121 | | | $ | 13,450 | | | $ | 24,067 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | The accompanying notes are an integral part of these consolidated financial statements. | | The accompanying notes are an integral part of these consolidated financial statements. | |
New Concept Energy Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED| NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES | |
| CONSOLIDATED BALANCE SHEETS - CONTINUED | |
| (amounts in thousands, except share amounts) | |
| | | | | | | |
| | | December 31 | |
| | | 2011 | | | 2010 | |
| Liabilities and stockholders' equity | | | | | | |
| | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable - trade | | $ | 422 | | | $ | 83 | |
| Accrued expenses | | | 417 | | | | 156 | |
| Total current liabilities | | | 839 | | | | 239 | |
| | | | | | | | | |
| Long-term debt | | | | | | | | |
| Notes payable | | | 2,249 | | | | 1,308 | |
| Payable - related parties | | | 691 | | | | 953 | |
| Asset retirement obligation | | | 2,702 | | | | 2,573 | |
| Other long-term liabilities | | | 491 | | | | 723 | |
| Total liabilities | | | 6,972 | | | | 5,796 | |
| | | | | | | | | |
| Stockholders' equity | | | | | | | | |
| Preferred stock, Series B | | | 1 | | | | 1 | |
| Common stock, $.01 par value; authorized, 100,000,000 | | | | | | | | |
| shares; issued and outstanding, 1,946,935 shares | | | | | | | | |
| at December 31, 2011 and 2010 | | | 20 | | | | 20 | |
| Additional paid-in capital | | | 58,838 | | | | 58,838 | |
| Accumulated deficit | | | (52,381 | ) | | | (40,588 | ) |
| | | | | | | | | |
| | | | 6,478 | | | | 18,271 | |
| | | | | | | | | |
| Total liabilities & equity | | $ | 13,450 | | | $ | 24,067 | |
| | | | | | | | | |
| | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
(amounts in thousands, except share amounts)
| | | December 31, | |
| Liabilities And Stockholders’ Equity | | 2010 | | | 2009 | |
| | | | | | | |
| Current liabilities: | | | | | | |
| | | | | | | |
Accounts payable – trade | | $ | 83 | | | $ | 154 | |
Accrued expenses | | | 156 | | | | 1,903 | |
| | | | | | | | | |
| Total current liabilities | | | 239 | | | | 2,057 | |
| | | | | | | | | |
| Long-term liabilities: | | | | | | | | |
Notes payable | | | 1,308 | | | | 1,198 | |
| Payable – related parties | | | 953 | | | | 808 | |
Asset retirement obligation | | | 2,573 | | | | 2,450 | |
Other long-term liabilities | | | 723 | | | | 326 | |
| | | | | | | | | |
| Total liabilities | | | 5,796 | | | | 6,839 | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
Preferred stock, Series B | | | 1 | | | | 1 | |
| Common stock, $.01 par value; authorized, 100,000,000 | | | | | | | | |
shares; issued and outstanding, 1,946,935 shares at | | | | | | | | |
December 31, 2010 and 2009 | | | 20 | | | | 20 | |
Additional paid-in capital | | | 58,838 | | | | 58,838 | |
Accumulated deficit | | | (40,588 | ) | | | (40,577 | ) |
| | | | | | | | | |
| | | | 18,271 | | | | 18,282 | |
| | | | | | | | | |
| Total Liabilities & Equity | | $ | 24,067 | | | $ | 25,121 | |
| | | | | | | | | |
The accompanying notes are an integral part of these statements.
New Concept Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS| NEW CONCEPT ENERGY, INC. AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF OPERATION | |
| (amounts in thousands, except per share data) | |
| | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| Revenue | | | | | | | | | |
| Oil and gas operations, net of royalties | | $ | 1,020 | | | $ | 1,288 | | | $ | 1,246 | |
| Real estate operations | | | 2,881 | | | | 2,925 | | | | 2,852 | |
| | | | 3,901 | | | | 4,213 | | | | 4,098 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Oil and gas operations | | | 1,430 | | | | 1,292 | | | | 1,498 | |
| Real estate operations | | | 1,290 | | | | 1,225 | | | | 1,217 | |
| Lease expense | | | 866 | | | | 886 | | | | 958 | |
| Corporate general and administrative | | | 619 | | | | 731 | | | | 1,342 | |
| Accretion of asset retirement obligation | | | 129 | | | | 123 | | | | 117 | |
| Impariment of natural gas and oil properties | | | 1,428 | | | | - | | | | 1,695 | |
| | | | 5,762 | | | | 4,257 | | | | 6,827 | |
| Operating earnings (loss) | | | (1,861 | ) | | | (44 | ) | | | (2,729 | ) |
| | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | |
| Interest income | | | 360 | | | | 497 | | | | 574 | |
| Interest expense | | | (131 | ) | | | (124 | ) | | | (123 | ) |
| Bad debt expense - note receivable | | | (10,006 | ) | | | - | | | | - | |
| Other income (expense), net | | | (155 | ) | | | (340 | ) | | | 68 | |
| | | | (9,932 | ) | | | 33 | | | | 519 | |
| | | | | | | | | | | | | |
| Earnings from continuing operations | | | (11,793 | ) | | | (11 | ) | | | (2,210 | ) |
| | | | | | | | | | | | | |
| Net income (loss) applicable to common shares | | $ | (11,793 | ) | | $ | (11 | ) | | $ | (2,210 | ) |
| | | | | | | | | | | | | |
| Net income (loss) per common share-basic and diluted | | $ | (6.06 | ) | | $ | (0.01 | ) | | $ | (1.14 | ) |
| | | | | | | | | | | | | |
| Weighted average common and equivalent shares outstanding - basic | | | 1,947 | | | | 1,947 | | | | 1,947 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| The accompanying notes are an integral part of these consolidated financial statements. | |
(amounts in thousands, except per share amounts)
| | | Year Ended | |
| | | December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| | | | | | | | | | |
| Revenue | | | | | | | | | |
Oil and gas operations, net of royalties | | $ | 1,248 | | | $ | 1,206 | | | $ | 672 | |
Real estate operations | | | 2,965 | | | | 2,892 | | | | 2,888 | |
| | | | 4,213 | | | | 4,098 | | | | 3,560 | |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
Oil and gas operations | | | 1,292 | | | | 1,498 | | | | 494 | |
Real estate operations | | | 1,225 | | | | 1,217 | | | | 1,400 | |
Lease expense | | | 886 | | | | 958 | | | | 954 | |
Corporate general and administrative | | | 731 | | | | 1,342 | | | | 852 | |
Accretion of asset retirement obligation | | | 123 | | | | 117 | | | | — | |
Impairment of natural gas and oil properties | | | — | | | | 1,695 | | | | — | |
| | | | 4,257 | | | | 6,827 | | | | 3,702 | |
| | | | | | | | | | | | | |
Operating earnings (loss) | | | (44 | ) | | | (2,729 | ) | | | (142 | ) |
| | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | |
Interest income | | | 497 | | | | 574 | | | | 785 | |
Interest expense | | | (124 | ) | | | (123 | ) | | | (270 | ) |
Gain on sale of assets, net | | | — | | | | — | | | | 16,432 | |
Other income (expense), net | | | (340 | ) | | | 68 | | | | 464 | |
| | | | 33 | | | | 519 | | | | 17,411 | |
| | | | | | | | | | | | | |
Earnings (Loss) from continuing operations | | | (11 | ) | | | (2,210 | ) | | | 17,269 | |
Provision for income taxes | | | — | | | | — | | | | (1,774 | ) |
| | | | | | | | | | | | | |
| Net income ( loss) applicable to common shares | | $ | (11 | ) | | $ | (2,210 | ) | | $ | 15,495 | |
| Net income ( loss) per common share-basic and diluted | | $ | (0.01 | ) | | $ | (1.14 | ) | | $ | 8.92 | |
| | | | | | | | | | | | | |
Weighted average common and equivalent shares outstanding – basic | | | 1,947 | | | | 1,947 | | | | 1,737 | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
New Concept Energy Inc. and Subsidiaries| NEW CONCEPT ENERGY, INC AND SUBSIDIARIES | |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |
| (amounts in thousands) | |
| | | Year ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| | | | | | | | | | |
| Cash flows from operating activities | | | | | | | | | |
| Net income | | $ | (11,793 | ) | | $ | (11 | ) | | $ | (2,210 | ) |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities | |
| Depreciation, depletion and amortization | | | 416 | | | | 363 | | | | 359 | |
| Impairment of natural gas and oil properties | | | 1,428 | | | | - | | | | 1,695 | |
| Accretion of asset retirement obligation | | | 129 | | | | 123 | | | | 117 | |
| Write-off of affiliate receivable | | | 10,361 | | | | - | | | | 157 | |
| Changes in operating assets and liabilities | | | | | | | | | | | | |
| Other current and non-current assets | | | (202 | ) | | | (271 | ) | | | (153 | ) |
| Accounts payable and other liabilities | | | 106 | | | | 275 | | | | 771 | |
| Interest receivable | | | - | | | | (496 | ) | | | - | |
| Interest payable | | | 121 | | | | 121 | | | | - | |
| Net cash provided by (used) in operating activities | | | 566 | | | | 104 | | | | 736 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Investment in oil and gas properties | | | (1,074 | ) | | | (219 | ) | | | (344 | ) |
| Fixed asset additions | | | (262 | ) | | | (48 | ) | | | (107 | ) |
| Funding of notes receivable | | | - | | | | - | | | | (372 | ) |
| Net cash provided by (used in) investing activities | | | (1,336 | ) | | | (267 | ) | | | (823 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Proceeds from loans to affiliates | | | - | | | | 142 | | | | 58 | |
| Payment on notes payable | | | (31 | ) | | | (75 | ) | | | (6 | ) |
| Proceeds from loans | | | 851 | | | | - | | | | - | |
| Debt incurred in connection with acquisition | | | - | | | | - | | | | - | |
| Net cash provided by (used in) financing activities | | | 820 | | | | 67 | | | | 52 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 50 | | | | (96 | ) | | | (35 | ) |
| Cash and cash equivalents at beginning of year | | | 59 | | | | 155 | | | | 190 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 109 | | | $ | 59 | | | $ | 155 | |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
| | | Year ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Cash flows from operating activities | | | | | | | | | |
| Net income | | $ | (11 | ) | | $ | (2,210 | ) | | $ | 15,495 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | | | | | | | | | | |
| Depreciation, depletion and amortization | | | 363 | | | | 359 | | | | 171 | |
| Impairment of natural gas and oil properties | | | - | | | | 1,695 | | | | - | |
| Accretion of asset retirement obligation | | | 123 | | | | 117 | | | | - | |
| Write-off of affiliate receivable | | | - | | | | 157 | | | | - | |
| Change in deferred tax asset | | | - | | | | - | | | | (16,432 | ) |
| (Gain) loss on sale of assets | | | - | | | | - | | | | 250 | |
| Changes in operating assets and liabilities | | | | | | | | | | | | |
| Other current and non-current assets | | | (271 | ) | | | (153 | ) | | | (873 | ) |
| Accounts payable and other liabilities | | | 275 | | | | 771 | | | | 1,816 | |
| Interest receivable | | | (496 | ) | | | - | | | | - | |
| Interest payable | | | 121 | | | | - | | | | - | |
| Net cash provided by operating activities | | | 104 | | | | 736 | | | | 427 | |
| | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Investment in oil and gas properties | | | (219 | ) | | | (344 | ) | | | - | |
| Fixed asset additions | | | (48 | ) | | | (107 | ) | | | (1,354 | ) |
| Funding of notes receivable | | | - | | | | (372 | ) | | | (23,287 | ) |
| Net repayment of notes receivable | | | - | | | | - | | | | 14,791 | |
| Purchase of oil and gas | | | - | | | | - | | | | (10,808 | ) |
| Proceeds from sale of mineral rights | | | - | | | | - | | | | 23,288 | |
| Net cash provided by (used in) investing activities | | | (267 | ) | | | (823 | ) | | | 2,630 | |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Proceeds of loans to affiliates | | | 142 | | | | 58 | | | | - | |
| Payment on notes payable | | | (75 | ) | | | (6 | ) | | | (6,921 | ) |
| Proceeds from common stock issuance | | | - | | | | - | | | | 2,856 | |
| Debt incurred in connection with acquisition | | | - | | | | - | | | | 1,026 | |
| Net cash provided by (used in) financing activities | | | 67 | | | | 52 | | | | (3,039 | ) |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (96 | ) | | | (35 | ) | | | 18 | |
| Cash and cash equivalents at beginning of year | | | 155 | | | | 190 | | | | 191 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of year | | $ | 59 | | | $ | 155 | | | $ | 209 | |
The accompanying notes are an integral part of these statementsconsolidated financial statements.
New Concept Energy Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | Series B | | | Common | | | Additional | | | Accum- | | | | |
| | | Preferred stock | | | Stock | | | paid in | | | ulated | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | capital | | | deficit | | | Total | |
| Balance at December 31, 2008 | | | 1 | | | $ | 1 | | | | 1,947 | | | $ | 20 | | | $ | 58,838 | | | $ | (38,367 | ) | | $ | 20,492 | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | (2,210 | ) | | | 15,495 | |
| Balance at December 31, 2009 | | | 1 | | | | 1 | | | | 1,947 | | | | 20 | | | | 58,838 | | | | (40,577 | ) | | | 18,282 | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | (11 | ) | | | (11 | ) |
| Balance at December 31, 2010 | | | 1 | | | | 1 | | | | 1,947 | | | | 20 | | | | 58,838 | | | | (40,588 | ) | | | 18,271 | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | (11,793 | ) | | | (11,793 | ) |
| Balance at December 31, 2011 | | | 1 | | | $ | 1 | | | | 1,947 | | | $ | 20 | | | $ | 58,838 | | | $ | (52,381 | ) | | $ | 6,478 | |
| | | | Series B | | | | Common | | | | Additional | | | | Accum- | | | | | |
| | | | Preferred stock | | | | Stock | | | | paid in | | | | ulated | | | | | |
| | | | Shares | | | | Amount | | | | Shares | | | | Amount | | | | capital | | | | deficit | | | | Total | |
| Balance at December 31, 2007 | | | 1 | | | $ | 1 | | | | 987 | | | $ | 10 | | | $ | 55,992 | | | $ | (53,862 | ) | | $ | 2,141 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercised stock option | | | | | | | | | | | 10 | | | | | | | | 5 | | | | | | | | 5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issue of stock | | | | | | | | | | | 950 | | | | 10 | | | | 2,840 | | | | | | | | 2,850 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | 15,495 | | | | 15,495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 | | | 1 | | | | 1 | | | | 1,947 | | | | 20 | | | | 58,838 | | | | (38,367 | ) | | | 20,492 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | (2,210 | ) | | | (2,210 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | 1 | | | | 1 | | | | 1,947 | | | | 20 | | | | 58,838 | | | | (40,577 | ) | | | 18,282 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income | | | | | | | | | | | | | | | | | | | | | | | (11 | ) | | | (11 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2010 | | | 1 | | | $ | 1 | | | | 1,947 | | | $ | 20 | | | $ | 58,838 | | | $ | (40,588 | ) | | $ | 18,271 | |
The accompanying notes are an integral part of this statement.these consolidated financial statements.
New Concept Energy Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20102011
NOTE A – BUSINESS DESCRIPTION AND PRESENTATION
Acquisition Of Carl E. Smith Companies
Effective September 1, 2008, theThe Company, completed the acquisition of certain entities, mineral interests and related assets through entities named Carl E. Smith, Inc., a West Virginia corporation, two of its affiliates, Carl E. Smith Petroleum, Inc. and Carl E. Smith Real Estate, Inc. and other privatelywholly owned related assets (collectively “CESI”). Immediately after the acquisition, all of the acquired entities and assets were merged into Carl E. Smith, Inc., the name of which was changed tosubsidiaries Mountaineer State Energy, Inc. (“Mountaineer”) which became a wholly-owned subsidiary of NCE. The assets acquired include 94 producing gas wells, 121 non-producing wells and related equipment, mineral leases covering 20,000 acres located in Athens and Meigs Counties in Ohio as well as Calhoun, Jackson and Roane Counties in West Virginia. In addition to the wells and mineral leases, the acquisition included a complex covering approximately 41 acres of land with 8,000 square feet of office and storage buildings, an adjacent 12 acres site with a 24 stall horse barn, machinery and equipment in excess of the needs of the gas operation and approximately $1.5 million in cash.
The entities involved were the subject of bankruptcy proceedings in the Southern District of West Virginia originally filed in 2003 styled In Re Carl E. Smith, Inc., Case No. 03-22274 (Chapter 11) pending in the United Stated Bankruptcy Court for the Southern District of West Virginia, which was substantively consolidated with Carl E. Smith Real Estate, Inc., Case No. 03-22298 and Carl E. Smith Petroleum, Inc., Case No. 08-20022 (the “Bankruptcy Proceedings”). Pursuant to the Bankruptcy Proceedings, a subsidiary of NCE acquired a claim of an independent third party, and engaged in a bidding contest which resulted in the Court awarding NCE the bid on August 6, 2008, which was confirmed August 16, 2008, but various documents and instruments confirming the matter were not completed until September 19, 2008. Pursuant to the confirmed Plan of Reorganization, NCE paid all existing debt to third parties of approximately $5 million, paid cash of $7.3 million dollars to certain shareholders and paid or will pay approximately $1.6 million dollars in fees and bankruptcy related costs.
In addition, the Company entered into several agreements in which the Company agreed to payout two former shareholders and a family member.
The agreements all provide that bankruptcy administrative costs incurred over $500,000 would be reimbursed to NCE prior to any payments being made on the notes. The administrative costs incurred over $500,000 were approximately $1.1 million. The agreements further provide that NCE can reduce the note payments for any amounts that might be recovered by the IRS should they choose to audit CESI for period prior to the acquisition.
In the first two similar agreements two shareholders are to receive a total of $1,760,000 less administrative costs noted above. The Company is to make payments to each former shareholder in the amount of $1,000 a week for the next 17 years. The allocation of the administrative costs to each specific agreement is dependent on future events however the Company does not anticipate making any cash payments for five years.
The second agreement was in the amount of $600,000 and requires the Company should make payments equal to 100% of the available cash flow from the acquired entities. The entire obligation is required to be paid within five years. Available cash flow is to be determined by NCE based upon Mountaineer State Energy’s actual as well as projected cash needs. NCE anticipates that almost all of this obligation will be used to repay a portion of the reimbursable administrative costs.
The third agreement was in the amount of $1,000,000 and state the Company should make payments in the amount of 75% of available funds from the operation of the business under terms similar to the note above. However, the payments do not begin until the second agreement is fully funded. The agreement further provides that it be paid within seven years.
The Company has evaluated the above notes and after factoring the administrative cost reimbursement, imputing a 10% interest rate, and accreting interest since acquisition, has valued the above obligations at $1,308,000 at December 31, 2010.
The purchase price of $13,850,000 was paid in cash as follows.
The computation of the purchase price is:
| Cash paid to all sellers | | $ | 7,300 | |
| Cash paid to creditors | | | 5,000 | |
| Cash paid in fees and bankruptcy related costs | | | 1,550 | |
| Total cash cost | | $ | 13,850 | |
Nature of Operations,
New Concept LLC. operates oil and gas wells and mineral leases in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane Counties in West Virginia. The vast majority of this oil & gas operation was acquired through the acquisition of the Carl E. Smith Companies in 2008 As of March 30, 2012 the Company has 159 producing oil & gas wells, 27 non-producing wells and related equipment and mineral leases covering approximately 20,000 acres.
With the exception of 8 wells that were drilled during the past two years the wells in West Virginia through its wholly owned subsidiaries Mountaineer State Energy, LLC and Mountaineer State Operations, LLC.Ohio were drilled in the 1960’s, the majority were drilled in the 1970’s and 1980’s. The majority of wells are located on leased property under mineral rights contracts.
The Company engaged the firm of independent oil and gas engineers Lee Keeling & Associates, Inc. to estimate the net oil and gas reserves. On the basis of their study, the estimates of future net revenues using a present value discount of 10% were estimated to be $10.9 million at December 31, 2011.
NCE also leases and operates a retirement community in King City Oregon, with a capacity of 114 residents.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of New Concept Energy, Inc. and its majority-owned subsidiaries (collectively, the “Company”, New Concept or “NCE”) and are prepared on the basis of accounting principles generally accepted in the United States of America. All significant intercompany transactions and accounts have been eliminated.
Depreciation and Amortization
Depreciation is provided for in amounts sufficient to relate the cost of property and equipment to operations over their estimated service lives, ranging from 3 to 40 years. Depreciation is computed by the straight-line method.
Depreciation and amortization expense, included in operations expenses, waswas$122,000, $71,000, $83,000 for 2011, 2010, and $60,000 for 2010, 2009 and 2008 respectively.
Depreciation, Depletion and Amortization of Mineral RightsProducing Oil & Gas Properties
Depreciation, depletion and amortization (“DD&A”) of producing properties is computed on the unit-of-production method based on estimated proved oil and gas reserves. While total DD&A expense for the life of a property is limited to the property’s total cost, proved reserve revisions result in a change in timing of when DD&A expense is recognized.
The Company recorded depletion of mineral rights of $293,000 in 2010,$294,000, $298,000 in 2009, and $112,000 in 2008.2011, 2010 and 2009 respectively.
Segments
The Company operates two primary business segments; oil and gas operations and retirement facilities. Segment data is provided in “Note N” to these consolidated financial statements.
Major Purchaser
The Company hasCompany’s sell most of its natural gas production to one primary purchaser and all of its oil natural gas, which in 2010 comprised 86 percent of total sales.production to one purchaser. While there is an available market for crude oil and natural gas production, we cannot be assured that the loss of this purchaser would not have a material impact on the Company.
Oil and Gas Reserves
Our proved oil and gas reserves are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
Depreciation, depletion and amortization (“DD&A”) of producing properties is computed on the unit-of-production method based on estimated proved oil and gas reserves. While total DD&A expense for the life of a property is limited to the property’s total cost, proved reserve revisions result in a change in timing of when DD&A expense is recognized. Downward revisions of proved reserves result in an acceleration of DD&A expense, while upward revisions tend to lower the rate of DD&A expense recognition.
The standardized measure of discounted future net cash flows and changes in such cash flows are prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using recent oil and gas prices and year-end costs for estimated future development and production expenditures. Discounted future net cash flows are calculated using a 10% rate. Changes in any of these assumptions could have a significant impact on the standardized measure. Accordingly, the standardized measure does not represent management’s estimated current market value of proved reserves. At December 31, 2011, the Company’s net book value of oil and natural gas properties exceeded the ceiling amount based on the unweighted arithmetic average of the first day of each month for the 12-month period ended December 31, 2011. As a result in 2011, the Company recorded a full cost ceiling adjustment before income taxes of approximately $1.4 million.
Full cost accounting
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires the Company to calculate quarterly, by cost center, a “ceiling,” or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense. Beginning December 31, 2009, full cost companies use the unweighted arithmetic average first day of the month price for oil and natural gas for the 12-month period preceding the calculation date to calculate the future net revenues of proved reserves. Prior to December 31, 2009, companies used the price in effect at the calculation date and had the option, under certain circumstances, to elect to use subsequent commodity prices if they increased after the calculation date.
At December 31, 2009, the Company’s net book value of oil and natural gas properties exceeded the ceiling amount based on the unweighted arithmetic average of the first day of each month for the 12-month period ended December 31, 2009. As a result in 2009, the Company recorded a full cost ceiling adjustment before income taxes of approximately $1.7 million.
The Company assesses any unproved oil and gas properties on an annual basis for possible impairment or reduction in value. The Company assesses properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate an impairment of unproved properties not subject to amortization, the associated costs incurred to date for such properties are then included in unproved properties subject to amortization.
Gas gathering assets
Gas gathering assets are capitalized as part of the depletable pool and ratably charged to earnings along with other capitalized exploration, drilling and development costs.
Office and field equipment
Office and field equipment are capitalized at cost and depreciated on a straight line basis over their estimated useful lives. Office and field equipment useful lives range from 5 to 30 years.
Revenue recognition and gas imbalances
We use the sales method of accounting for oil and natural gas revenues. Under the sales method, revenues are recognized based on actual volumes of oil and natural gas sold to purchasers. Gas imbalances at December 31, 20102011 were not significant. New Concept also follows the sales method of accounting for natural gas production imbalances and would recognize a liability if the existing proved reserves were not adequate to cover an imbalance.
Accounting for Leases
Leases of property, plant and equipment where the Company assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalized at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance charge is charged to the income statement over the lease period. Property, plant and equipment acquired under finance leasing contracts are depreciated over the useful life of the asset.
Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.
Revenue Recognition
Rental income for residential property leases is recorded when due from residents and is recognized monthly as it is earned, which is not materially different than on a straight-line basis as lease terms are generally for periods of one year or less.
Revenues are recognized when products are shipped or services are provided to customers, title is transferred, the sales price is fixed or determinable and collectability is reasonably assured. Costs associated with revenues are recorded in cost of revenues. Production volumes of natural gas are sold immediately and transported via pipeline. Royalties on the production of natural gas either paid in cash or settled through the delivery of volumes. New Concept includes royalties in its revenues and cost of revenues when settlement of the royalties is paid in cash, while royalties settled by the delivery of volumes are excluded from revenues and cost of revenues.
New Concept follows the sales method of accounting for natural gas production imbalances and would recognize a liability if the existing proved reserves were not adequate to cover an imbalance.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all short-term deposits and money market investments with a maturity of less than three months to be cash equivalents.
Other Intangible Assets
The cost of acquired patents, trademarks and licenses is capitalized and amortized using the straight-line method over their useful lives. The carrying amount of each intangible asset is reviewed annually and adjusted for permanent impairment where it is considered necessary.
Impairment of Notes Receivable
Notes receivable are identified as impaired when it is probable that interest and principal will not be collected according to the contractual terms of the note agreements. The accrual of interest is discontinued on such notes, and no income is recognized until all past due amounts of principal and interest are recovered in full.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable intangibles for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In reviewing recoverability, the Company estimates the future cash flows expected to result from use of the assets and eventually disposing of them. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized based on the asset’s fair value.
The Company determines the fair value of assets to be disposed of and records the asset at the lower of fair value less disposal costs or carrying value. Assets are not depreciated while held for disposal.
Sales of Real Estate
Gains on sales of real estate are recognized to the extent permitted by Accounting Standards Codification Topic 360-20, “Real Estate Sales – Real Estate Sales”, (“ASC 360-20”). Until the requirements of ASC 360-20 have been met for full profit recognition, sales are accounted for by the installment or cost recovery method, whichever is appropriate.
Real Estate Held for Sale
Real Estate Held for Sale
Accounting Standards Codification Topic 360, “Property, Plant, & Equipment” (“ASC 360”)requires that properties held for sale be reported at the lower of carrying amount or fair value less costs of sale. If a reduction in a held for sale property’s carrying amount to fair value less costs of sale is required, a provision for loss is recognized by a charge against earnings. Subsequent revisions, either upward or downward, to a held for sale property’s estimated fair value less costs of sale are recorded as an adjustment to the property’s carrying amount, but not in excess of the property’s carrying amount when originally classified as held for sale. A corresponding charge against or credit to earnings is recognized. Properties held for sale are not depreciated.
Asset Retirement Obligation
The Company records an asset retirement obligation liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The asset retirement obligation is further described in Note Q.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that our company has not implemented that materially affect our financial statements.
NOTE C – NOTES RECEIVABLERECEIVABLES – PAYABLES – RELATED PARTYPARTIES
Prime Income Asset Management, Inc (“PIAMI”) is a real estate management company that also invests in real estate for its own account. PIAMI is indirectly owned by a private trust. URC Energy, Inc is and has been a significant investor in the Company. URC Energy, Inc is indirectly owned by a private trust. While the two trusts are separate they have similar trustees and beneficiaries and therefore the Company has noted PIAMI as a related party.
Eurenergy Resources, Inc (“ERC”) is an oil & gas company that owned and operated oil and gas wells.
Beginning in 2006 the Company made loans to PIAMI and ERC at interest rates higher than the Company believes it could have gotten elsewhere.
In July 2006, the Company made an unsecured $1.4 million loan to ERC at an annual interest rate of 8%. In June of 2008, the Company entered into a letter of credit agreement with ERC. The terms of the agreement call for interest at the prime rate plus two percent. At May 21, 2009, the balance of the two notes and accrued interest thereon was $3,970,897.
On November 20, 2007, the Company made a $630,000 loan to Prime Income Asset Management, Inc. (“PIAMI”).PIAMI. In 2008, the Company made additional net advances on the loan totaling approximately $6.3 million. The initial loan and the additional advances have been combined into a new loan with interest at the prime rate plus two percent.
On May 21, 2009, PIAMI acquired both Eurenergy notes receivable at face value plus accrued interest totaling $3,970,897.
Effective May 21, 2009 the Company and PIAMI entered into a new note combing all of the above loans into one note. The loan calls for interest at the prime rate plus 2% with principal and interest payable within 30 days after demand, and if not sooner demanded, on January 31, 2013.
At December 31, 2010,2009, the balance due including accrued interest on the note receivable from PIAMI was $10.1$11.1 million.
WhileDuring 2010 the notes receivable by their terms are demand notesnote was paid down whereby as of December 31, 2010 the outstanding principal and interest totaled $10.4 million.
During the first three quarters of 2011 the Company does not anticipate making demand on such notes duringaccrued interest of $360,000 and received $715,000 in payments from PIAMI. In the fourth quarter of 2011 the Company determined that the financial condition of PIAMI had deteriorated and there could be no assurance that the amount owed would or could be collected. The company has therefore not classifiedrecorded a reserve OF $10 million and written the notes as being a current assets.receivable to zero.
In November 2007, the Company entered into an agreement with EurenergyERC to provide accounting and administrative services at $15,000 per month. As of December 31, 2010, EurenergyJune 30, 2009 ERC owes the Company $156,900 for such services. In June 2009, the agreement with EurenergyERC expired. As of December 31, 2010,2009 the amount receivable from EurenergyERC has been fully reserved. ERC filed for bankruptcy in 2010. The Company entered into a similar agreement with Energy Advisors, LLC in July 2009. AsIn 2010 the formal arrangement with Energy Advisors was ended with all amounts due having been paid.
The Company has payables to related parties of $691,000 and $953,000 for December 31, 2011 amd 2010 Energy Advisors owesrespectively. This balance includes amounts due for various accounting services such as payroll, insurance, supplies and other operational matters which the Company $270,000 for accounting and administrative services.obtained through related parties.
By purchasing these services through certain large entities the Company believes it can get lower costs and better service.
NOTE D – FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate values at December 31, 20102011 to 2009:2010:
Cash and cash equivalents - The carrying amount approximates fair value because of the short maturity of these instruments.
Long-term debt - The fair value of the Company’s long-term debt is estimated based on market rates for the same or similar issues. The carrying value of long-term debt approximates its fair value.
Notes receivable – The fair value of the note receivable from an affiliate partnership is estimated to approximate fair value based on its short maturity. It is not practical to estimate the fair value of notes receivable from sale of properties because no quoted market exists and there are no comparable debt instruments to provide a basis for valuation.
NOTE E – NOTES PAYABLE
Notes Payable is comprised of the following (in thousands): |
Notes Payable is comprised of the following (in thousands):
| | | 2010 | | | 2009 | |
| Notes payable from the acquisition of Mountaineer State Energy, Inc. | | $ | 1,308 | | | $ | 1,198 | |
| | | 2011 | | | 2010 | |
| | | | | | | | |
| Notes payable from the acquisition of Mountaineer State Energy, Inc. | | $ | 1388 | | | $ | 1,308 | |
| Bank Debt | | $ | 861 | | | | | |
| | | $ | 2,249 | | | $ | 1,308 | |
Aggregate annual principal maturities of long-term debt at December 31, 20102011 are as follows (in thousands):
| 2010 | | $ | — | |
| 2011 | | | — | |
| 2012 | | | — | |
| 2013 | | | 33 | |
| 2014 | | | 60 | |
| Thereafter | | | 1,215 | |
| | | | | |
| | | $ | 1,308 | |
| 2012 | | $ | 47 | |
| 2013 | | | 337 | |
| 2014 | | | 367 | |
| 2015 | | | 1,034 | |
| 2016 | | | 49 | |
| Thereafter | | | 415 | |
| | | | | |
| | | $ | 2,549 | |
NOTE F – OPERATING LEASES
The Company leases a retirement community under an operating lease in which the basic term expires January 31, 2012,2017, with optionsan option to renew for two consecutivean additional five-year periods.period. The Company also has operating leases for equipment and office space. The leases generally provide that the Company pay property taxes, insurance and maintenance.
Future minimum payments for the primary lease following December 31, 20102011 are as follows (in thousands):
| 2011 | | $ | 906 | | |
| 2012 | | | 77 | | | $ | 924 | |
| 2013 | | | | 942 | |
| 2014 | | | | 961 | |
| 2015 | | | | 980 | |
| 2016 | | | | 1,000 | |
| 2017 | | | | 83 | |
| | | | | | | | | |
| | | $ | 983 | | | $ | 4,890 | |
Lease expense in 2011, 2010 and 2009 was $905,000, $888,000 and 2008 was $888,000, $958,000 and $954,000, respectively.
NOTE G - EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings per share (in thousands, except per share data):
| | | Year ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Basic Earnings Per Share: | | | | | | | | | |
| Numerator: | | | | | | | | | |
Net income from continuing operations | | $ | (11 | ) | | $ | (2,210 | ) | | $ | 14,444 | |
| Denominator: | | | | | | | | | | | | |
Weighted average shares outstanding | | | 1,947 | | | | 1,947 | | | | 1,737 | |
| | | | | | | | | | | | | |
Basic earnings per share from continuing operations | | | (0.01 | ) | | | (1.14 | ) | | $ | 8.32 | |
Basic earnings per share from discontinued operations | | $ | — | | | $ | — | | | $ | — | |
| | | Year ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| Basic Earnings Per Share: | | | | | | | | | |
| Numerator: | | | | | | | | | |
| Net income from continuing operations | | $ | (11,793 | ) | | $ | (11 | ) | | $ | 2,210 | ) |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | |
| Weighted average shares outstanding | | | 1,947 | | | | 1,947 | | | | 1,947 | |
| | | | | | | | | | | | | |
| Basic earnings per share from | | | | | | | | | | | | |
| continuing operations | | | (6.06 | ) | | | (0.01 | ) | | | (1.14 | ) |
| Basic earnings per share from | | | | | | | | | | | | |
| discontinued operations | | $ | - | | | $ | - | | | $ | - | |
NOTE H – INCOME TAXES
At December 31, 2010,2011, the Company had net operating loss carry forwards of approximately $7 million, which expire between 2012 and 2025.
NOTE I – STOCKHOLDERS’ EQUITY
| Outstanding Preferred Stock | | | | |
| | | | | |
| Preferred stock consists of the following (amounts in thousands): | | | | |
| | Year Ended | Year Ended |
| | December 31, | December 31, |
| | 2010 | | 2009 | 2011 | | 2010 |
Series B convertible preferred stock, $10 par value, liquidation value of $100, authorized 100 shares, issued and outstanding one share | 1 | | 1 | 1 | | 1 |
The Series B preferred stock has a liquidation value of $100 per share and is convertible into common stock over a ten-year period at prices escalating from $500 per share in 1993 to $1,111 per share by 2002. The right to convert expired April 30, 2003. Dividends at a rate of 6% are payable in cash or preferred shares at the option of the Company.
NOTE J – GAIN (LOSS) ON SALE OF ASSETS
Acquisition and Sale of Leases for Mineral Interests
On November 21, 2007, a wholly owned subsidiary of New Concept entered into an agreement with Source Rock Energy of Arkansas, LLC, a Nevada limited liability company (“SRA”), a related party, to acquire 1,712 net acres of mineral leasehold interests in four separate sections of land in the Fayetteville Shale area of Arkansas in exchange for the issuance of a promissory note. Through such arrangement, the subsidiary also acquired two separate options to acquire additional leasehold acreage through August 15, 2008. The Company and its subsidiary intend to, subject to the availability of funds, develop such acreage through drilling of one or more exploratory wells on the property acquired. The acquisition price was $4,000 per net acre payable on December 31, 2010 with interest at 9.5% per annum. The two separate options to acquire additional acreage cover leasehold interests on 1,815 net acres and 583 net acres in the same county in Arkansas at the same price of $4,000 per net acre. On May 6, 2008, the Company exercised its options to acquire the additional acreage. Immediately subsequent to the exercise of the options, the Company sold the leasehold interest to an independent third party purchaser for $8,000 per acre. The Company recorded a gain of $16.4 million in the second quarter of 2008 as a result of the sale.
Other Disposition
The Company leases and operates the Pacific Pointe Retirement Inn in King City, Oregon. On November 16, 2007 the Company sold, to an unrelated party, a portion of its future cash flow from its Retirement Center in Oregon for a cash payment of $750,000. More specifically the Company sold 25% of the cash flow for the 60 month period ending January 2012. For the period January 2012 through January 2022 the buyer will receive 10% of the cash flow from the retirement center.
NOTE KJ – OTHER INCOME (EXPENSE)
Other income (expense) consists of the following: (amounts in thousands)
| | | Year ended December 31, | |
| | | 2010 | | | 2009 | | | 2008 | |
| Recovery of previously written off note receivable | | $ | - | | | $ | - | | | $ | 274 | |
| Write off of costs associated with attempted acquisition | | | (350 | ) | | | - | | | | - | |
| Other | | | 10 | | | | 68 | | | | 190 | |
| | | | | | | | | | | | | |
| | | $ | (340 | ) | | $ | 68 | | | $ | 464 | |
| | | | | | | | | | | | | |
| | | Year ended December 31, | |
| | | 2011 | | | 2010 | | | 2009 | |
| Write off of Sterling investment | | $ | - | | | $ | (350 | ) | | $ | - | |
| Other | | | (155 | ) | | | 10 | | | | 68 | |
| | | | | | | | | | | | | |
| | | $ | (155 | ) | | $ | (340 | ) | | $ | 68 | |
NOTE LK – CONTINGENCIES
Carlton Energy Group, LLC
In December 2006, Carlton Energy Group, LLC (“Carlton”) instituted litigation against an individual, Eurenergy Resources Corporation (“Eurenergy”) and several other entities including New Concept Energy, Inc., which was then known as CabelTel International Corporation (the “Company”) alleging tortuous conduct, breach of contract and other matters and as to the Company that it was the alter ego of Eurenergy. The Carlton claims were based upon an alleged tortuous interference with a contract by The individual and Eurenergy related to the right to explore a coal bed methane concession in Bulgaria which had never (and has not to this day) produced a drop of hydrocarbons. At no time during the pendency of this project or since did the company or any of its officers or directors have any interest whatsoever in the success or failure of the so-called “Bulgaria Project”. However, in the litigation, Carlton alleged that the Company was the alter-ego of certain of the other Defendants including Eurenergy.
Following a jury trial in 2009, the Trial Court (295th District Court of Harris County, Texas) reduced the actual damages found by the jury of $66.5 million and entered judgment against EurEnergy and The individual jointly and severally for $31.16 million in actual damages on its tortuous-interference claim and the Court further assessed exemplary damages against The individual and EurEnergy in the amount of $8.5 million each. The Court granted a judgment for the Company that it was not the alter ego of any of the other parties and thereby would not incur any damages.
Cross appeals were filed by Carlton, The individual and EurEnergy to the Court of Appeals for the First District of Texas (the “Court of Appeals”) which rendered its opinion on February 14, 2012. The Court of Appeals opinion, among other things, reinstated the jury award of actual damages jointly and severely against The individual and EurEnergy in the amount of $66.5 million and overturned the Trial Court’s ruling favorable to the Company rendering a judgment for that amount plus exemplary damages against the Company as the “alter ego” of Eurenergy.
The Company plans to file a Petition for Review of the Court of Appeals Decision with the Supreme Court of the State of Texas. The Company vigorously denies that it is the “alter ego” of any other entity; further the Company strongly believes that the Court of Appeals opinion is erroneous in concluding that the Company is an “alter ego” of any other entity which is contrary to Nevada substantive law. There are also questions regarding the underlying liability of EurEnergy and if Eurenergy is successful in its petition for review or, even if unsuccessful if the Company is successful on its positions described above, the Trial Court’s judgment could be reinstated and the Company would have no liability on this claim.
Chesapeake Exploration Limited Partnership and Chesapeake Operating, Inc. (“Chesapeake”)
In January 2006, the Company entered into a joint operating agreement evidencing its acquisition of a 5% interest in two gas wells being drilled and ultimately operated by Chesapeake. The Company relied on the cost projections provided by Chesapeake to make its investment decision. Subsequent to its investment, the Company received an invoice from Chesapeake for $556,217 which, according to Chesapeake, represents the Company’s 5% share of additional costs incurred by Chesapeake in drilling the wells. The Company believes that these additional costs far exceed any reasonable expense that should have been incurred in drilling the two wells and were incurred without notifying the Company of such expenses. The Company has requested an accounting of the additional expenses and a reconciliation of the final costs to the cost estimates previously presented. In April 2007, Chesapeake filed a lawsuit against the Company and others in State District Court inof Tarrant County, Texas.
In March 2011, Chesapeake received a summary judgment award for $686,874 plus legal fees. The Company intends to appealhas appealed the judge’s ruling. However,The Company is vigorously pursuing its legal options however the Company has also recorded the it’s potential obligation should Chesapeake prevail.
The wells in question are producing natural gas to which the Company is entitled to its pro rata share. Chesapeake is withholding the amounts due the company until the legal matter is resolved. As of December 2011 the Company has recorded the investment in the wells and the obligation to Chesapeake.a liability due Chesapeake of $491,000.
Yazoo Pipeline Company, LP and Sterling Exploration and Production Company (“Sterling”)
Sterling Exploration and Production Company was an oil and gas exploration and production company with offshore production and Yazoo Pipeline Company transported Sterling’s and others oil and gas to shore for delivery to purchasers. On December 23, 2008 Sterling filed for Chapter 11 bankruptcy relief.
In 2009 we attempted to acquire Sterling and invested a total of approximately $400,000 including debtor in possession financing paid to Sterling and other expenses. In 2009 we wrote off $50,000 of our investment. In 2010 the potential acquisition was abandoned and in the second quarter of 2010 we wrote off the balance of our investment. The bankruptcy of Sterling was ultimately converted to a Chapter 7 filing.
In December, 2010 the bankruptcy trustee filed a lawsuit against a number of parties including New Concept Energy, Inc with a variety of allegations including that we conspired with other defendants or aided and abetted others in a breach of fiduciary duty owed to the debtors of Sterling.
We are unaware of any misconduct on our part and see no merit to this case as it pertainshowever after considering the future legal costs and the potential for a potential negative outcome the Company has agreed to us.settle the entire matter for a payment of $225,000 which will be paid in the second quarter of 2012.
Other
The Company has been named as a defendant in other lawsuits in the ordinary course of business. Management is of the opinion that these lawsuits will not have a material effect on the financial condition, results of operations or cash flows of the Company.
NOTE ML – OPERATING SEGMENTS
The following table reconciles the segment information to the corresponding amounts in the Consolidated Statements of Operations and total assets:
| Year ended December 31, 2011 | | Oil and Gas Operations | | | Retirement Facility | | | Corporate | | | Total | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating revenue | | $ | 1,020 | | | $ | 2,881 | | | $ | - | | | $ | 3,901 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | 1,095 | | | | 2,154 | | | | 577 | | | | 5,217 | |
| Depreciation, depletion and amortization | | | 335 | | | | 42 | | | | 2 | | | | 416 | |
| Accretion of asset aetirement obligation | | | 129 | | | | - | | | | - | | | | 129 | |
| Impairment of oil and gas properties | | | 1,428 | | | | | | | | | | | | | |
| Total Operating Expenses | | | 2,987 | | | | 2,196 | | | | 579 | | | | 5,762 | |
| Interest expense | | | - | | | | - | | | | (131 | ) | | | (131 | ) |
| Other income | | | - | | | | - | | | | (10,161 | ) | | | (10,161 | ) |
| Interest income | | | - | | | | - | | | | 360 | | | | 360 | |
| Segment operating income | | $ | (1,967 | ) | | $ | 685 | | | $ | (10,511 | ) | | $ | (11,793 | ) |
| Assets | | $ | 12,376 | | | $ | 254 | | | $ | 820 | | | $ | 13,450 | |
| Year ended December 31, 2010 | | Oil and Gas Operations | | Retirement Facility | | Corporate | | | Total | | | Oil and Gas Operations | | | Retirement Facility | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 1,248 | | | $ | 2,965 | | | $ | - | | | $ | 4,213 | | | $ | 1,248 | | | $ | 2,965 | | | $ | - | | | $ | 4,213 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 970 | | | | 2,072 | | | | 729 | | | | 3,771 | | | | 970 | | | | 2,072 | | | | 729 | | | | 3,771 | |
| Depreciation, Depletion and Amortization | | | 322 | | | | 39 | | | | 2 | | | | 363 | | | | 322 | | | | 39 | | | | 2 | | | | 363 | |
| Accretion of Asset Retirement Obligation | | | 123 | | | | - | | | | - | | | | 123 | | | | 123 | | | | - | | | | - | | | | 123 | |
| Total Operating Expenses | | | 1,415 | | | | 2,111 | | | | 731 | | | | 4,257 | | | | 1,415 | | | | 2,111 | | | | 731 | | | | 4,257 | |
| Interest expense | | | (124 | ) | | | - | | | | - | | | | (124 | ) | | | (124 | ) | | | - | | | | - | | | | (124 | ) |
| Other income | | | - | | | | - | | | | (340 | ) | | | (340 | ) | | | - | | | | - | | | | (340 | ) | | | (340 | ) |
| Interest income | | | - | | | | - | | | | 497 | | | | 497 | | | | - | | | | - | | | | 497 | | | | 497 | |
| Segment operating income | | $ | (291 | ) | | $ | 854 | | | $ | (574 | ) | | $ | (11 | ) | | $ | (291 | ) | | $ | 854 | | | $ | (574 | ) | | $ | (11 | ) |
| Assets | | $ | 12,950 | | | $ | 220 | | | $ | 10,852 | | | $ | 24,022 | | | $ | 12,950 | | | $ | 220 | | | $ | 10,852 | | | $ | 24,022 | |
| | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2009 | | Oil and Gas Operations | | Retirement Facility | | Corporate | | | Total | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 1,206 | | | $ | 2,892 | | | $ | - | | | $ | 4,098 | | |
| | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 1,173 | | | | 2,118 | | | | 1,342 | | | | 4,633 | | |
| Depreciation, Depletion and Amortization | | | 325 | | | | 57 | | | | - | | | | 382 | | |
| Accretion of Asset Retirement Obligation | | | 117 | | | | - | | | | - | | | | 117 | | |
| Impairment of oil and gas properties | | | 1,695 | | | | - | | | | | | | | 1,695 | | |
| Total Operating Expenses | | | 3,310 | | | | 2,175 | | | | 1,342 | | | | 6,827 | | |
| Interest expense | | | (123 | ) | | | - | | | | - | | | | (123 | ) | |
| Other income | | | 30 | | | | - | | | | 38 | | | | 68 | | |
| Interest income | | | - | | | | - | | | | 574 | | | | 574 | | |
| Segment operating income | | $ | (2,197 | ) | | $ | 717 | | | $ | (730 | ) | | $ | (2,210 | ) | |
| Assets | | $ | 13,103 | | | $ | 12,108 | | | $ | - | | | $ | 25,211 | | |
| | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2008 | | Oil and Gas Operations | | Retirement Facility | | Corporate | | | Total | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Operating revenue | | $ | 672 | | | $ | 2,888 | | | $ | - | | | $ | 3,560 | | |
| | | | | | | | | | | | | | | | | | |
| Operating expenses | | | 378 | | | | 2,057 | | | | 1,096 | | | | 3,531 | | |
| Depreciation, Depletion and Amortization | | | 116 | | | | 55 | | | | - | | | | 171 | | |
| Accretion of Asset Retirement Obligation | | | - | | | | - | | | | - | | | | - | | |
| Impairment of oil and gas properties | | | - | | | | - | | | | | | | | - | | |
| Total Operating Expenses | | | 494 | | | | 2,112 | | | | 1,096 | | | | 3,702 | | |
| Interest expense | | | (40 | ) | | | - | | | | (230 | ) | | | (270 | ) | |
| Other income | | | - | | | | - | | | | 464 | | | | 464 | | |
| Interest income | | | - | | | | - | | | | 785 | | | | 785 | | |
| Gain on Land Sales | | | 16,432 | | | | - | | | | - | | | | 16,432 | | |
| Segment operating income | | $ | 16,570 | | | $ | 776 | | | $ | (77 | ) | | $ | 17,269 | | |
| Assets | | $ | 12,158 | | | $ | 11,900 | | | $ | - | | | $ | 24,058 | | |
| Year ended December 31, 2009 | | Oil and Gas Operations | | | Retirement Facility | | | Corporate | | | Total | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Operating revenue | | $ | 1,206 | | | $ | 2,892 | | | $ | - | | | $ | 4,098 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | 1,173 | | | | 2,118 | | | | 1,342 | | | | 4,633 | |
| Depreciation, Depletion and Amortization | | | 325 | | | | 57 | | | | - | | | | 382 | |
| Accretion of Asset Retirement Obligation | | | 117 | | | | - | | | | - | | | | 117 | |
| Impairment of oil and gas properties | | | 1,695 | | | | - | | | | | | | | 1,695 | |
| Total Operating Expenses | | | 3,310 | | | | 2,175 | | | | 1,342 | | | | 6,827 | |
| Interest expense | | | (123 | ) | | | - | | | | - | | | | (123 | ) |
| Other income | | | 30 | | | | - | | | | 38 | | | | 68 | |
| Interest income | | | - | | | | - | | | | 574 | | | | 574 | |
| Segment operating income | | $ | (2,197 | ) | | $ | 717 | | | $ | (730 | ) | | $ | (2,210 | ) |
| Assets | | $ | 13,103 | | | $ | 292 | | | $ | 11,816 | | | $ | 25,211 | |
NOTE NM - QUARTERLY DATA (UNAUDITED)
The table below reflects the Company’s selected quarterly information for the years ended December 31, 2010,2011, 2009 and 2008. Amounts shown are in thousands except per share amounts.
| | | First | | | Second | | | Third | | | Fourth | | | First | | | Second | | | Third | | | Fourth | |
| Year ended December 31, 2010 | | Quarter | | | Quarter | | | Quarter | | | Quarter | | |
| Year ended December 31, 2011 | | | Quarter | | | Quarter | | | Quarter | | | Quarter | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 973 | | | $ | 1,082 | | | $ | 1,112 | | | $ | 1,046 | | | $ | 1,009 | | | $ | 1,013 | | | $ | 1,003 | | | $ | 876 | |
| Operating (expense) | | | (950 | ) | | | (948 | ) | | | (891 | ) | | | (776 | ) | | | (948 | ) | | | (911 | ) | | | (990 | ) | | | (2,334 | ) |
| Corporate general and administrative expense | | | (199 | ) | | | (124 | ) | | | (124 | ) | | | (245 | ) | | | (124 | ) | | | (126 | ) | | | (101 | ) | | | (228 | ) |
| Impairment of natural gas and oil properties | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Other income (expense) net | | | 136 | | | | 285 | | | | 91 | | | | (479 | ) | | | 160 | | | | 90 | | | | 30 | | | | (10,212 | ) |
| Provision for income taxes | | | — | | | | — | | | | — | | | | — | | |
| Gain on sale of mineral rights | | | — | | | | — | | | | — | | | | — | | |
| Net income (loss) from continuing operations | | | (40 | ) | | | (273 | ) | | | 188 | | | | 114 | | | | 97 | | | | 66 | | | | (57 | ) | | | (11,899 | ) |
| Income (loss) allocable to common shareholders | | | (40 | ) | | | (273 | ) | | | 188 | | | | 114 | | | $ | 97 | | | $ | 66 | | | $ | (57 | ) | | $ | (11,899 | ) |
Income (loss) per common share – basic | | $ | (0.02 | ) | | $ | (0.12 | ) | | $ | 0.10 | | | $ | 0.06 | | | $ | 0.05 | | | $ | 0.03 | | | $ | (0.03 | ) | | $ | (6.10 | ) |
| Year ended December 31, 2009 | | | | | | | | | | | | | |
| Year ended December 31, 2010 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 1,068 | | | $ | 1,049 | | | $ | 970 | | | $ | 1,011 | | | $ | 973 | | | $ | 1,082 | | | $ | 1,112 | | | $ | (3,167 | ) |
| Operating (expense) | | | (965 | ) | | | (992 | ) | | | (864 | ) | | | (1,288 | ) | | | (950 | ) | | | (948 | ) | | | (891 | ) | | | 2,789 | |
| Corporate general and administrative expense | | | (262 | ) | | | (235 | ) | | | (169 | ) | | | (357 | ) | | | (199 | ) | | | (124 | ) | | | (124 | ) | | | 447 | |
| Impairment of natural gas and oil properties | | | — | | | | — | | | | — | | | | (1,695 | ) | | | — | | | | — | | | | — | | | | — | |
| Other income (expense) net | | | 182 | | | | 94 | | | | 112 | | | | 131 | | | | 126 | | | | 285 | | | | 91 | | | | (512 | ) |
| Provision for income taxes | | | — | | | | — | | | | — | | | | — | | |
| Gain on sale of mineral rights | | | — | | | | — | | | | — | | | | — | | |
| Net income (loss) from continuing operations | | | 23 | | | | (84 | ) | | | 49 | | | | (2,198 | ) | | | (40 | ) | | | (273 | ) | | | 188 | | | | 125 | |
| Income (loss) allocable to common shareholders | | | 23 | | | | (84 | ) | | | 49 | | | | (2,198 | ) | | $ | (40 | ) | | $ | (273 | ) | | $ | 188 | | | | 125 | |
Income (loss) per common share – basic | | $ | 0.01 | | | $ | (.04 | ) | | $ | 0.03 | | | $ | (1.27 | ) | | $ | (0.02 | ) | | $ | (0.12 | ) | | $ | 0.10 | | | $ | 0.06 | |
| Year ended December 31, 2008 | | | | | | | | | | | | | |
| Year ended December 31, 2009 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 704 | | | $ | 699 | | | $ | 858 | | | $ | 1,299 | | | $ | 1,068 | | | $ | 1,049 | | | $ | 970 | | | $ | 1,011 | |
| Operating (expense) | | | (551 | ) | | | (550 | ) | | | (652 | ) | | | (948 | ) | | | (965 | ) | | | (992 | ) | | | (864 | | | | (1,288 | ) |
| Corporate general and administrative expense | | | (261 | ) | | | (264 | ) | | | (108 | ) | | | (368 | ) | | | (262 | ) | | | (235 | ) | | | (169 | ) | | | (357 | ) |
| Impairment of natural gas and oil properties | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (1,695 | ) |
| Other income (expense) net | | | 164 | | | | 276 | | | | 524 | | | | 15 | | | | 182 | | | | 94 | | | | 112 | | | | 131 | |
| Provision for income taxes | | | — | | | | (1,626 | ) | | | — | | | | (148 | ) | |
| Net income (loss) from continuing operations | | | — | | | | 16,432 | | | | — | | | | — | | | | 23 | | | | (84 | ) | | | 49 | | | | (2,198 | ) |
| Gain (loss) from discontinued operations | | | 56 | | | | 14,967 | | | | 622 | | | | (150 | ) | |
| Income (loss) allocable to common shareholders | | | 56 | | | | 14,967 | | | | 622 | | | | (150 | ) | | $ | 23 | | | $ | (84 | ) | | $ | 49 | | | $ | (2,198 | ) |
Income (loss) per common share – basic and diluted | | $ | 0.04 | | | $ | 7.73 | | | $ | 0.25 | | | $ | (0.08 | ) | |
| Income (loss) per common share – basic | | | $ | 0.01 | | | $ | (0.04 | ) | | $ | 0.03 | | | $ | (1.27 | ) |
NOTE ON - SUPPLEMENTARY FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES (UNAUDITED)
The Company’s net ownership interests in estimated quantities of proved oil and natural gas reserves and changes in net proved reserves, all of which are located in the continental United States, are summarized below:
| | | 2011 | |
| | | Gas (MMCF) | | | Oil (MBBLS) | |
| Proved developed and undeveloped reserves — | | | | | | |
| January 1, 2011 | | | 6,954 | | | | 72 | |
| Purchase of oil and natural gas properties in place | | | - | | | | - | |
| Discoveries and extensions | | | - | | | | 37 | |
| Revisions | | | (4,227 | ) | | | - | |
| Sales of oil and gas properties in place | | | - | | | | - | |
| Production | | | (176 | ) | | | (6 | ) |
| End of year | | | 2,551 | | | | 103 | |
| Proved developed reserves at beginning of year | | | 1899 | | | | 14 | |
| Proved developed reserves at end of year | | | 1,105 | | | | 57 | |
| | | | | | | | | |
| | | 2010 | |
| | | Gas (MMCF) | | | Oil (MBBLS) | |
| Proved developed and undeveloped reserves — | | | | | | |
| January 1, 2010 | | | 7561 | | | | 19 | |
| Purchase of oil and natural gas properties in place | | | - | | | | - | |
| Discoveries and extensions | | | - | | | | 55 | |
| Revisions | | | (415 | ) | | | - | |
| Sales of oil and gas properties in place | | | - | | | | - | |
| Production | | | (192 | ) | | | (2 | ) |
| End of year | | | 6,954 | | | | 72 | |
| Proved developed reserves at beginning of year | | | 2,867 | | | | 19 | |
| Proved developed reserves at end of year | | | 1,899 | | | | 14 | |
| | | | | | | | | |
| | | 2010 | |
| | | | | | | |
| | | Gas (MMCF) | | | Oil (MBBLS) | |
| Proved developed and undeveloped reserves — | | | | | | |
| January 1, 2010 | | | 7561 | | | | 19 | |
| Purchase of oil and natural gas properties in place | | | - | | | | - | |
| Discoveries and extensions | | | - | | | | 55 | |
| Revisions | | | (415 | ) | | | - | |
| Sales of oil and gas properties in place | | | | | | | | |
| Production | | | (192 | ) | | | (2 | ) |
| End of year | | | 6,954 | | | | 72 | |
| Proved developed reserves at beginning of year | | | 2,867 | | | | 19 | |
| Proved developed reserves at end of year | | | 1,899 | | | | 14 | |
| | | | | | | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | |
| | | Gas (MMCF) | | | Oil (MBBLS) | |
| Proved developed and undeveloped reserves — | | | | | | | | |
| January 1, 2009 | | | 7,397 | | | | 37 | |
| Purchase of oil and natural gas properties in place | | | - | | | | - | |
| Discoveries and extensions | | | - | | | | - | |
| Revisions | | | 400 | | | | (14 | ) |
| Sales of oil and gas properties in place | | | | | | | - | |
| Production | | | (236 | ) | | | (4 | ) |
| End of year | | | 7,561 | | | | 19 | |
| Proved developed reserves at beginning of year | | | 2,703 | | | | 37 | |
| Proved developed reserves at end of year | | | 2,867 | | | | 19 | |
| | | | | | | | | |
The following table presents the changes in our total proved undeveloped reserves.
| | | Gas | | | Oil | | | Gas | | | Oil | |
| | | (MMCF) | | | (MBBLS) | | |
| | | | | | | | |
| Proved undeveloped reserves as of December 31, 2008 | | | 4,694 | | | | - | | |
Conversion to proved developed reserves | | | - | | | | - | | |
| | | | | | | | | | | (MMCF) | | | (MBBLS) | |
Proved undeveloped reserves as of December 31, 2009 | | | 4,694 | | | | - | | | | 4,694 | | | | - | |
Revaluation of undeveloped reserves | | | 361 | | | | 57 | | | | 361 | | | | 57 | |
| | | | | | | | | | | | | | | | | |
Proved undeveloped reserves as of December 31, 2010 | | | 5,055 | | | | 57 | | | | 5,055 | | | | 57 | |
| | | | | | | | | | |
| Conversion to proved developed reserves | | | | - | | | | 42 | |
| Revaluation of undeveloped reserves | | | | (3,608 | ) | | | (52 | ) |
| | | | | | | | | | |
Proved undeveloped reserves as of December 31, 2011 | | | | 1,447 | | | | 47 | |
The following table reflects the capitalized costs relating to oil and gas producing activities.
| | | 2010 | | | 2009 | | |
| | | | | | | | | 2011 | | | 2010 | |
| Property acquisition costs: | | | | | | | | | | | | |
Proved properties | | $ | 11,928 | | | $ | 11,782 | | | $ | 12,862 | | | $ | 11,928 | |
Unproved properties | | | - | | | | - | | | | - | | | | - | |
Accumulated depreciation, depletion and amortization | | | | | | | | | | | | | | | | |
and valuation allowance | | | (703 | ) | | | (410 | ) | | | (1,721 | ) | | | (703 | ) |
| | | | | | | | | | | | | | | | | |
Net capitalized costs | | $ | 11,225 | | | $ | 11,372 | | | $ | 11,141 | | | $ | 11,225 | |
The following table reflects the costs incurred in oil and gas property acquisition, exploration and development activities.
| | | 2010 | | | 2009 | | |
| | | | | | | | | 2011 | | | 2010 | |
| Property acquisition costs: | | | | | | | | | | | | |
Proved properties | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Unproved properties | | | - | | | | - | | | | - | | | | - | |
Exploration costs | | | - | | | | - | | | | - | | | | - | |
Development costs | | | 219 | | | | - | | | | 934 | | | | 219 | |
| | | | | | | | | | | | | | | | | |
Total cost incurred | | $ | 219 | | | $ | - | | | $ | 934 | | | $ | -219 | |
The following table reflects revenues and expenses directly associated with our oil and gas producing activities, including general and administrative expenses directly related to such producing activities. They do not include any allocation of interest costs or general corporate overhead and, therefore, are not necessarily indicative of the contribution to net earnings of our oil and gas operations. Income tax expense has been calculated by applying statutory income tax rates to oil and gas sales after deducting costs, including depreciation, depletion and amortization and after giving effect to permanent differences.
| | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Oil and gas sales | | $ | 1,248 | | | $ | 1,206 | | | $ | 1,020 $ | | | | 1,248 | |
Production expenses | | | (702 | ) | | | (836 | ) | | | (1,095 | ) | | | (702 | ) |
Exploration expenses | | | - | | | | - | | | | - | | | | | |
Taxes other than income taxes | | | (10 | ) | | | (5 | ) | |
Depreciation, depletion and amortization | | | (323 | ) | | | (442 | ) | | | (335 | ) | | | (323 | ) |
Impairment of oil and gas properties | | | - | | | | (1,695 | ) | | | (1,428 | ) | | | - | |
General and administrative expenses | | | (380 | ) | | | (332 | ) | | | (335 | ) | | | (390 | ) |
Income tax benefit (expense) | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
Results of operations | | $ | (167 | ) | | $ | (2,104 | ) | | $ | (1,967 | ) | | $ | (167 | ) |
The following table reflects the standardized measure of future net cash flows related to our proved reserves.
| | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Future oil and gas cash inflows | | $ | 51,928 | | | $ | 49,250 | | | $ | 23,395 | | | $ | 51,928 | |
Future oil and gas operating expenses | | | (12,265 | ) | | | (9,318 | ) | | | (5,036 | ) | | | (12,265 | ) |
Future development costs | | | (15,123 | ) | | | (13,589 | ) | | | (2,343 | ) | | | (15,123 | ) |
Future income tax expense | | | (244 | ) | | | (184 | ) | |
Future tax expense | | | | (370 | ) | | | (244 | ) |
Future net cash flows | | | 24,296 | | | | 26,159 | | | | 15,404 | | | | 24,296 | |
10% discount to reflect timing of cash flows | | | (11,878 | ) | | | (14,787 | ) | | | (4,505 | ) | | | (11,878 | ) |
| | | | | | | | | | | | | | | | | |
Standardized measure of discounted future net cash flows | | $ | 12,418 | | | $ | 11,372 | | | $ | 11,141 | | | $ | 12,418 | |
The following table reflects the principal changes in the standardized measure of discounted future net cash flows attributable to our proved reserves.
| | | 2010 | | | 2009 | | | 2011 | | | 2010 | |
| | | | | | | | | | | | | |
| Beginning balance | | $ | 11,372 | | | $ | 17,808 | | | $ | 12,418 | | | $ | 11,372 | |
Oil and gas sales, net of production costs | | | (275 | ) | | | (51 | ) | | | (75 | ) | | | (275 | ) |
Purchase of reserves, net of future development costs | | | 491 | | | | - | | | | - | | | | 491 | |
Net changes in prices and production costs | | | 569 | | | | (6,385 | ) | | | (1,202 | | | | 569 | |
Extensions and discoveries, net of future development costs | | | 261 | | | | - | | |
Extensions and discoveries, net of future development costs- | | | | | | | | 261 | |
Revisions of quantity estimates | | | - | | | | - | | | | - | | | | - | |
Other changes | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
Ending balance | | $ | 12,418 | | | $ | 11,372 | | | $ | 11,141 | | | $ | 12,418 | |
NOTE PO – ASSET RETIREMENT OBLIGATION
The Company records an asset retirement obligation (ARO) when the total depth of a drilled well is reached and the Company can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records the ARO liability on the consolidated balance sheets and capitalizes a portion of the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. In general, the amount of an ARO and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date and adjusted for the Company’s credit risk. This amount is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds. The additional capitalized costs are depreciated on a unit-of-production basis or straight-line basis.
| | 2010 | | | 2009 | |
| Asset retirement obligation, January 1 | | $ | 2,450 | | | $ | 2,334 | |
| Acquisition of oil and gas properties | | | - | | | | - | |
| Revisions in the estimated cash flows | | | - | | | | - | |
| Liability incurred upon acquiring and drilling wells | | | - | | | | - | |
| Liability settled upon plugging and abandoning wells | | | - | | | | - | |
| Accretion of discount expense | | | 123 | | | | 116 | |
| Asset retirement obligation, December 31 | | $ | 2,573 | | | $ | 2,450 | |
| | 2011 | | | 2010 | |
| Asset retirement obligation, January 1 | | $ | 2,573 | | | $ | 2,450 | |
| Acquisition of oil and gas properties | | | - | | | | - | |
| Revisions in the estimated cash flows | | | - | | | | - | |
| Liability incurred upon acquiring and drilling wells | | | - | | | | - | |
| Liability settled upon plugging and abandoning wells | | | - | | | | - | |
| Accretion of discount expense | | | 129 | | | | 123 | |
| Asset retirement obligation, December 31 | | $ | 2,702 | | | $ | 2,573 | |
| | | | | | | | | |
NOTE M –SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 30, 2012, the date the financial statements were available to be issued, and has determined that there are none to be reported.